The Internet is potentially one of the greatest means ever devised for defending personal liberty. That's why so many government officials want to destroy it.
"Most Americans view the unprecedented and explosive growth of the Internet and on-line computer services as a major benefit to themselves and to society as a whole," observes Adam Thierer of the Heritage Foundation. "When many state and local government officials look at this developing industry, however, they see something else entirely: a new tax base."
The power to tax, of course, is the power to destroy. "With approximately 30,000 separate taxing jurisdictions in the United States eyeing the Internet as a new source of support for their spending habits, Members of Congress should pay attention," advises Thierer. "Subjecting this wonderful new technology to the collective taxing power of these jurisdictions could destroy it -- and quickly. At a minimum," he warns, "multiple and overlapping taxes on Internet transmissions will hinder the further development of this medium by limiting usage and discouraging increased electronic commerce."
Thierer argues that states and localities have no right to tax Internet transactions. "Because Internet and on-line electronic activity are forms of interstate and international commerce," he observes, "they fall under Congress' jurisdiction and authority. It is imperative, therefore, that Congress act now to ensure that the growth and development of this medium are not hindered by the taxing grasp of state and local lawmakers."
Local taxation of Internet transactions may not even be feasible, but why chance it? "Electronically transferred information travels across the Internet far too quickly for regulators to monitor and, more important, does so in a way that respects no geographic boundaries," Thierer explains. "It is virtually impossible to know the points at which the billions of daily Internet transactions begin and end. Consequently, state and local attempts to tax such intangible electronic commerce would result in a confusing and overlapping set of tax laws. Double taxation as well as multiple reporting and compliance problems would be inevitable."
Thierer argues that "the proliferation of satellite-based technologies and the wireless transmission of information will serve only to add to this confusion. As an increasing amount of Internet traffic is transmitted wirelessly across the United States and around the world, the jurisdictional claims of states and localities certainly lose credibility. Therefore, even though some states and localities may assess routine business income taxes on firms that provide Internet services within their jurisdictions," says Thierer, "it is constitutionally questionable (and may well be technologically impossible) to attempt the taxation of intangible electronic transmissions carried on the Internet."
Feasible or not, local taxation of Internet transactions is clearly unconstitutional. "State and local governments have no legal right to tax commercial activity that falls outside their jurisdictions," Adam Thierer insists. He urges Congress to assert its authority over interstate commerce and deny states and localities "a chance to impose taxes that will serve only to retard the growth and development of this crucially important communications medium."
