Is It An Unfair Tax Or States' Rights

November 5, 2003

To tax, or not to tax: that is the question.   It's a burning one of late in the United States Senate.   Senator Lamar Alexander was one of those holding up a vote to make the moratorium on taxing the Internet permanent.   He has been the target of public outcry from not only this state but all over the country.   People have accused him of caving in to the tax and spend liberals in Washington.   On the surface, it would seem that stopping any kind of taxing would be a good idea but this is a bit more complicated.   We invited Senator Alexander on the show to explain himself.

 

First of all, it must be noted that we are not talking about banning the taxation of goods sold on the Internet.   As that issue stands today, you're obligated to pay sales tax on Internet purchases if that business has a physical presence in Tennessee.   According to a 1992 U.S. Supreme Court decision, states can only require sellers that have a physical presence or “nexus” in the same state as the consumer to collect sales taxes.  

 

But that's not what's at issue in the U.S. Senate.

 

This is an argument about taxing your access to the Internet.   The federal moratorium banning states from collecting sales tax on your Internet access ran out at midnight on Halloween.   If you're scratching your head because you've seen a sales tax on your Internet access statement, you should know that Tennessee was taxing the service before the moratorium was imposed and is, therefore, grandfathered in.   Currently we collect anywhere from $7 million to $18 million per year on the tax, depending on whose numbers you use.   That grandfather privilege would vanish with the passage of this law.

 

Another part of the bill prohibits what it calls “bit taxes.”   Bit taxes would tax Internet information as it moves across servers in many taxing jurisdictions.   There's a fear that some states would begin taxing you by the e-mail.   Many businesses receive hundreds, if not thousands, of e-mails each day.   That could really take a bite out of Internet commerce.

 

My initial gut reaction to taxes is we certainly don't need more.   That's the position I took on making this moratorium permanent.   I looked at this as an interstate commerce issue, determining that the federal government has an interest in regulating it.   However, when Lamar joined our discussion he made a good point.   He claimed this was a states' rights issue.   The decision to tax, or not to tax, should be the states', not the federal government's.   As for my interstate commerce argument, he pointed out that we tax cable and satellite TV and they receive their programming from all over the country, if not the world.   Good point.

 

In addition to resisting new taxes, I also think taxes should be fair.   I have long argued that we should cut out the exemptions to our state sales tax and lower the sales tax across the board.   Excluding Internet access while including phone service, cable TV and rest seems to run counter to that.

 

The U.S. House of Representatives has voted overwhelmingly to make the moratorium on this particular Internet tax permanent.   The president has expressed his eagerness to sign it.   As is our custom in this country, the senate is where these hot issues go to cool off before they're decided.   Perhaps in this case simmer is more like it, with a good chance of it boiling over at any moment.

 

Indeed, to tax, or not to tax is the question.   The country watches the senate and awaits its answer.