This story appears in the
April 2003 issue of
Entrepreneur.
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That dark cloud on the horizon is the controversial specter of
taxation on the Internet, and it's gaining strength. State
governments feel they are losing a rightful revenue stream. Local
brick-and-mortar businesses feel the tax-free Internet represents
unfair competition. Internet sellers believe dealing with a myriad
of tax laws in states where they don't have a physical presence
would be confusing and cost-prohibitive. They all have legitimate
concerns.
The current congressional moratorium on Internet taxes is set to
expire in November 2003. Meanwhile, the states have been talking
amongst themselves. Last year, 32 states approved model
legislation, dubbed the Streamlined Sales Tax System, that would
take giant steps toward cleaning up the tangle of state and local
tax laws. Some large online retailers have already altered their
sales tax collecting systems to come into line with this agreement
that also allows them to avoid owing back taxes.
Not surprisingly, most online retailers aren't so
enthusiastic. The Direct Marketing Association has said the plan
could still represent a "burden on interstate marketers."
Others argue that the simplifications aren't simple enough.
Online entrepreneurs who lack resources to overhaul their systems
to come into compliance could be in a difficult position. Still,
it's doubtful the Internet will escape taxation forever when
state governments are struggling with shrinking revenues. Keep an
eye on Congress this fall, and visit www.streamlinedsalestax.org
for more on the state initiatives.
