"Short and Long Run Cost Drivers of the Isp Industry - PowerPoint"
ELC 498 Internet taxation Agenda • Last case not graded – Need one more grade sheet (Rob) • Final exam posted – Due Dec 21 @ 12 noon – Higher score on Final replaces lower score on Midterm • Written Case studies and presentations due Wednesday, Dec 19 @ 1 PM – 15 min MAX on presentations Overview • Introduction • Precedents and Mail Order Sales • Interests and their stakes • US Congressional Activity • State Activity: California • International Activity • Companies Weigh In • Internet Taxation 2007 Introduction (Brief History) • Oct 21, 1998 – The Internet Tax Freedom Act (ITFA) – No new taxes till 2001 • May 10, 2000 – US House passed H.R. 3709; Internet Non-discrimination Act INA – No new taxes till 2006 • Argument for law is – PRO- Taxes stifle growth – CON - States and municipalities losing revenue • An Important note – Federal law controls interstate and international commerce but not intrastate commerce Precedents and Mail Order Sales • US Supreme Court – "the power to tax involves the power to destroy", • 1819 McCulloch v. Maryland, 17 U.S. 316 – Ruled that mail order merchants were required to collect sales tax only from residents in sates where the merchant had a “nexus”. • 1967 National Bellas Haus v. Department of Revenue of the State of Illinois • 1992 Quill v. North Dakota • States reacted by creating “Use Tax” – Feared reduction of tax base – Use requires voluntary disclosure for “small” items • http://www.maine.gov/revenue/salesuse/use%20tax.htm • 0.04% of AGI ($40,000 $16) in Maine Precedents • Offline merchants claimed online merchants had financial advantage • Online merchants argued – advantage was nullified by increased distribution cost – Since they were not using state services why should they pay state tax ITFA • 1998 – 3 year moratorium on new Internet taxes – Creates Advisory Commission on Electronic Commerce (ACEC) • 19 members – 8 from industry and consumer groups – 8 from state and local governments – 3 from Clinton Administration • Study issues and report by April 2000 • 3 camps – Some taxations as long as its equitable – No taxes at all – Recoup state and local losses ACEC • Deliberations unproductive, many possibilities – Flat tax – No Tax – Credit card companies collect taxes – WTO ban taxes world wide – Make ITFA permanent • No consensus achieved – Internet Non-discrimination Act extended moratorium 5 years (2006) Interests and their Stakes • Internet users – 75% less likely to buy • Online vendors – no taxes – Too complex – Would lose customers – Limits growth • Organizations against – ITAA, IBM, MCI-WorldCom, Microsoft, AEA • New Organizations formed (no taxes) – Global Business Dialogue on Electronic Commerce – Internet Tax fairness Coalition Organizations favoring taxes • National Retail Federation • International Council of Shopping Centers • E-fairness coalition – International Council of Shopping Centers – American Booksellers Association – Tandy/Radio Shack – Wal-Mart • National Governors Association • National Council of State Legislatures • US Conference of Mayors • National League of Cities Congressional Activity • House Judiciary Committee – Henry Hyde (R-IL) – Prohibited FCC form allowing by the minute charges for ISP – Repealed 1% Federal exercise tax on telephone class – H.R. 3709 Internet Non-discrimination Act • Senate Commerce, Science and Transportation Committee – John McCain (R-AZ) – Filibuster problems • Streamlined Sales Tax Project – Standardized state to state sales tax State Activity: California • August 2000 CA legislature passes law that requires online companies that have brick and mortar shops in CA to collect CA sales tax for CA residents • Barnes and Nobles and Borders cried foul International Activity • WTO – Supported Tax Moratorium • UN wanted $0.01 bit tax for every 100 e-mails (WTO killed) • Organization for Economic Cooperation and Development – Ottawa Taxation Framework Conditions – Uniform taxation scheme for eCommerce where taxation occurs where goods and service are taxed where they are consumed • EU – VAT tax (15-25%) on electronically delivered goods to EU residents • Germany taxed Internet Surfing at work – Andreas Schmidt of Bertelsmann AG “ German bureaucrats apparently never run out of ideas to prevent economic growth” Services Covered under EU VAT • Broadcasting, including subscription or pay-per-view radio, television and internet services; • Music downloads; • Film, video, images and photographs; • Software, including virus scanning, banner blockers, downloaded drivers, screensavers and search engines; • Text and other information, including online news, instant messages, stock prices, sports results and horoscopes; • Online publications, including books, manuals, newspapers, articles, newsletters, magazines and periodicals; • Online games, including interactive or downloaded software; • Distance teaching, online training and coaching; • Educational material, including encyclopedia, atlas and aerial maps; and Auction services. Companies • Amazon, as the world largest online retailer, stood to lose the most from Internet Taxation – Amazon was not profitable at the time of this debate, Internet Taxation may cause Amazon to go under • Cisco supported INA – Claims state had surplus revenues and state tax codes were too complex…use the time to simplify • Internet Tax Fairness Coalition and American Electronic Association has 5 goals – Do not tax ecommerce more than commerce – Support simplicity – Retain and clarify “nexus” – Avoid new Internet taxes – Consider taxes in global context Internet Taxation Today • US – ITFA extended on October 30, 2007 for 7 more years – Sales Tax Fairness and Simplification Act (H.R. 3396) in hearings • http://www.ncsl.org/programs/fiscal/tctelcom.htm • EU VAT still in place – https://secure.hmce.gov.uk/ecom/voes/welcome.do;jsessioni d=26E449F8278200994D04BD766AEC3432 • WTO – no internet taxes • More Info – http://www.cob.sjsu.edu/nellen_a/e-links.html