E-commerce's future: To tax or not to tax

Feb. 6, 2000

By JIM BROOKS

Years ago, new car dealers located in Southern Indiana used to point out in their radio advertising that ``Kentucky buyers pay no sales tax in Indiana.''

Of course they didn't -- but Kentucky buyers weren't totally off the hook. They paid the tax when they registered their car -- in Kentucky.

The latest -- and still legal way -- of avoiding taxes while shopping is as close as your nearest computer.

As electronic commerce picks up steam, states and local governments -- and primarily the politicians who represent them -- are seeking to stake a tax claim on this new-fangled way of doing business -- if they can.

The federal government issued a moratorium in 1998, forbidding the creation of Internet-only taxes. The moratorium's goal was to allow e-commerce to grow without the burden of new taxes.

Some see e-commerce as a whole new economy; others see it as an opportunity for additional taxable revenue. Many politicians -- particularly state governors -- see their inability to tax e-commerce as a threat to their income tax revenues.

COLLECTION PROBLEM. States want the federal government to at least allow states the right to collect sales taxes on what they are owed from online sales.

Forty-five states and the District of Columbia currently have the right to collect ``use taxes'' from anyone who buys an out-of-state item by mail or phone if they didn't pay a sales tax on the item.

And while few people actually pay ``use taxes,'' several states want the federal government to clarify the existing Internet tax moratorium so to allow them the right to collect sales and use taxes.

TAXING ISSUE. Would you refuse to pay for an item if you had to pay sales tax online?

Probably not. But many tax opponents believe that a bevy of taxes applied to online sales will stunt the grow of e-commerce -- which is slated to top a $1 trillion by 2003.

The debate over taxes and the Internet isn't over, but my advice is don't be surprised if some sort of sales tax is eventually imposed.

During the recent Senate Budget Committee testioney, Michigan Gov. John Engler got his pro-taxation point across.

Having heard tax opponents' cry that any form of tax would cripple e-commerce, Engler retorted ``I don't know, AOL is large enough to buy Time Warner -- so they're scraping by, at least.''

The one proposal we'll probably see from all this debate is one that would prevent taxes on Internet access. This sort of legislation would prevent states or local governments from forcing Internet providers to pay surcharges for Internet connections.

AOL USERS SUE. If you installed America Online's latest software, AOL 5.0, and had computer problems, you're not alone.

CNN reported last week that a group of AOL users, upset at the problems they experienced after installing AOL's software on their computer systems, have filed a class-action lawsuit seeking $8 billion in damages.

Users have reported that after installing AOL 5.0, they had a variety of computer problems, from system crashes and lock-ups, to erased settings for accessing other Internet service providers, and affected how some non-Internet programs run.

American Online admits that its software makes changes and optimizes a user's computer for an AOL-only Internet connection.

To find out the latest news updates on AOL, I suggest the ``Full Coverage'' news section available at Yahoo! at http://fullcoverage.yahoo.com/fc/Tech/AOL/.

BLUELIGHT SPECIAL. If you're shopping in a Big Kmart or Super Kmart store in the future, don't be surprised to receive or see free CD-ROMs being distributed for the store's new free Internet access service, Bluelight.com.

The free CDs are supposed to arrive soon at more than 1,400 Big Kmart and Super Kmart stores across the country.

Bluelight.com is a joint venture of Kmart and Softbank Venture Capital.

Yahoo! (also an investor in the project) is providing a customizeable start page for individuals who sign up for the free Internet access service.

The company's Bluelight.com Web site offers a limited number of specially priced items for sale.

The Web site will be redesigned and expanded later this year.

FREE-PC DOA. This time last year, Free-PC was owner of the Internet's hottest Web site.

Its drawing power came in the form of a giveaway: a Compaq Presario PC with free Internet access -- given free to the first 10,000 people who qualified by completing an application and agreeing to the terms and conditions.

FREE-PC gave away thousands of computers with free Internet access, and was acquired late last year by low-cost computer seller EMachines.

EMachines recently sent its 25,000 Free-PC customers that it would discontinue providing the free Internet access on Feb. 14, calling the service ``unfeasible.''

The move was to end the drain on the company's resources, and came at at time when EMachines was preparing to raise at least $200 million when it offers its stock to the public for the first time.

For more information on EMachines, visit their Web site at www.emachines.com.

Comments and questions about this column may be sent to jbrooks@myoldkentuckyhome.com, or visit www.myoldkentuckyhome.com on the World Wide Web.

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