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New Federal Government Stance on Internet Taxes 304

Aatif writes, " According to this story on the Washington Post, President Clinton is softening his stance against Internet taxation. Mr. Clinton said the federal government would not interfere with individual states collecting sales taxes on goods sold over the Internet even though Congress is still under a tax moratorium." From what I've heard, my state (Maryland) and all the others are thinking up ways to tax Internet sales. It's only a matter of time before they figure out how, like it or not.
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New Federal Government Stance on Internet Taxes

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  • by Anonymous Coward
    Various jurisdictions have been bellyaching for years about the "money" that they "lose" by not collecting sales taxes on out-of-area sales. The Internet is just an extension of the catalog sales problem, from their point of view.

    Most states have a law that says you have to pay sales taxes on out-of-state purchases. This includes driving across the border, as well as catalog and Internet sales.

    If they were serious, the states would simply subpoena the transaction records of Visa and MasterCard. Then they could simply look for out of state purchases and send a bill for sales taxes owed.

    It'd be interesting to hear the screams ....
  • by Anonymous Coward
    Import duties assessed at the Port of Entry funded our government for the first hundred years. Income taxes didn't happen until about 1910 with the passage of an amendment. Sales taxes are also relatively new.

    The fun thing about the income tax is that it was pitched as a way to hit the wealthy. Just a few percent, for the 3% richest families.

    The pitch still works, doesn't it? You never learn. And this is happening at a time when all govts at all levels have more revenue than they can spend.

    The old style retail merchants better watch out for the law of unintended consequences. Because states get no revenue from internet sales, they aren't doing much to boost them. Wait till they become a cash cow, imerchants will get the tax breaks and other goodies the brickandmortar crowd now have all to themselves.
  • When someone buys something for $100 on the internet, it automatically reduces the sales tax received by the government. The $6 (or whatever) received from the internet sale replaces the $6 that would have been received from the local sale.
  • No, it's comparing the entire economy to the single good case that's a logical fallacy.

    If someone steals the software, it does not mean that they would have bought it. If they pay for the software, it means they don't buy something else--other software, bananas, caonsumption in the future, whatever.

    In the case of an internet sale, it means that they don't buy something else--somewhere, someplace.

    The differences is that piracy involves a single industry getting/not getting money, while an internet sale displaces the same amount of *something* somewhere (at least to a first and probably second order approximation. I'm not about to get into full equilibrium analysis in this type of forum . . . but such an analysis would reveal that the internet sale probably slightly increases the size of the economy).
  • I fully believe that one does need to tax goods bought on the net, as others have pointed out, using the Walmart as an excellent example. Buying stuff online is good and all, but it will never replace the physical stores. And *when* the ecommerce bubble bursts (not if), a lot of these solely ecommerce businesses will disappear overnight, and thus we can't come to depend on them for everything.

    That said, no one has yet to offer a tax code that any consumer will be treated fairly with. The two biggest questions are "How do you validate whom you are taxing?" and "Who gets the taxes?".

    The first is difficult from a technical viewpoint. I've yet to see any specification or protocol or method to 100% positively ID who is buying the goods. Credits cards are close to 100%, but not perfect. There's too much at risk to assume that the current methods will accurately tell me who is buying something on my website, where they live and thus how much to charge them. And what about oversees people?

    The second is very political. As others have pointed out, Oregon has no sales tax. Michigan, on the other hand, has a ~6% sales tax, plus they want to collect "use tax" for out-of-state purchases. So if I bought something from an OR based company, what tax do I get charged? IMO, you should pay the sales tax to the state that you bought it from, but other states will cry foul as industry will relocate to states with no sales tax, dragging away people and money from other states.

    At least to this end, the fairest solution as I see it is to have the nat'l gov't determine a nat'l sales tax on internet sales, the rate set as being the population-normalized averages of every state. This will probably be between 5 to 6%. All domestic internet sales will have this tax, collected by the national gov't. The money is returned to the states based on the population and sales tax of the state. Thus, in the above scheme, OR will get no returns from this, while I'd expect CA and NY to get rather significant chunks.

    In line with that, two other things have to be done: first, all mail order and otherwise all transactions not done in person need to be taxes via this method, instead of the usual method for mail order. There is no difference from ordering from the internet as there is from ordering from Eddie Bauer over the phone or via mail. Second, all states must abolish any "use tax" clauses; they already tax purchased items twice and should not be legal assuming the above was put into place.

    I know this isn't the best solution, but it is probably the most practical and easiest to implement while still being fair to the states (and cities too for those that have city sales tax as well).

  • Based on what I know, the proposal that a lot of states are considering is that devised by the National Conference of State Legislatures' Internet Taxation Task Force. You can read a copy of their "'Zero Burden' Sales Tax Proposal" [].

    The main aspects of this plan are:

    • Making sales taxes more similiar across the states
    • Simplifying state tax laws
    • Fostering the development of private third parties responsible for collecting and transmitting taxes

    Bob Kopp

  • Do you drive on the roads in your state? Did you go to public school? Will your kids? Do you enjoy having a fire department?


  • That argument is a logically fallacious as the arguments put forward by the "anti-pirating" lobby.

    Why do you assume that everything that is bought online would be bought locally if it were not possible to buy it online?
  • I don't see why the net should be exempt from tax. Just because the medium in which sales are made has changed shouldn't change everything else. Not taxing net sales, will only mean longer, higher taxation on non-net sold goods

    This simply does not follow. Do you honestly think that the government is going to say, "Oh good, we have all this tax from Internet sales, let's reduce standard taxes"?

    Of course they won't. They will take all you give them, and more. This is another government attempt to yet another bite out of our collective ass. The people must say no, and say it loudly.

  • >>I buy a book worth $50 from I pay 25% VAT of both the book and the shipping at the time of delivery (appr. $50 + $6 + 25% = $70).

    In Germany, if you order something to your home address, you usually dont have to pay VAT or any duties. I have ordered books for 100-200$ and hardware for 50$ from the US without paying anything. However, if you use a a business address as shipping address, you will always have to pay a lot (VAT, import duties, stuff like that), and this can be up to 50% (that I paid for 4 T-Shirts from copyleft).
  • You're almost right. In Germany you pay 6% VAT for food, books and other dead trees and 16% for everything else.
  • The optimist in me makes me take a look at the bright side of internet taxes as each state scrambles to take a cut of goods crossing their borders:

    It will put Amazon out of business.

    The bad side:

    It will put most other internet shops out of business too. I can say goodbye to all the nice hardware I buy on a whim and no more greeting the nice fedex and UPS guys who bring me big boxes full of computer toys.
  • Now, IF the fed decides to make a "bandwidth tax" or a "transaction tax", which is what some are proposing now, that is a breech of our constitution"

    A tax on our internet bandwidth would effectively be a tax on free speech.

    Imagine getting taxed on a popular web page. Say you are a member of a local band who enjoys sharing some music. Even though you want to give away the music for free, that bandwidth is going to be taxed.

    It adds up. Free speech is going to be costly. Disadvantaged people will not afford to express opinions or go to jail for tax evasion.
  • Goods sold within the same state via any means (with certain exceptions - YMMV by state) are subject to state taxation.

    I live in WA and if Amazon _didn't_ tax my purchases, they would get in big trouble with the WA Dept. of Revenue.

    This has always been the case, just as with mail order.
  • OK folks, Maybe my threshold is set too high here or maybe I have been too busy to pay attention, but did Congress and 3/4 of the states of the union ratify a constitutional amendment which obviates Article 1, Section 9 []?

    That article clearly states that, and I quote verbatim: No Tax or duty shall be laid on Articles exported from any State.

    What part of this is ambiguous, and what part does not apply in this situation?

    Not only that, but just below, in article 1 section 10 (Powers prohibited of States) it clearly states that No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports..

    BTW, A1S9 is subtitled 'Limits on Congress', which means that Congress may NOT deviate from this legally unless the constitution itself is amended!!!! Therefore Congress can't grant those rights (A1S10) because they are not authorized to (A1S9), again, without an amendment to the Constitution itself.

    What is so hard to understand here? And why get worked up about it?? This pops up occasionally, and it really shouldn't as it's much ado about nothing until the amendment is proposed....

    Your Working Boy,
  • Most of the comments here seem to misunderstand the current tax situation, though matters aren't helped by the story's claim that purchases are now "effectively" tax free. Most states (including, for example, CA and NJ) charge use tax on goods purchased out of state. These taxes apply whether the purchases are from catalogs or over the internet. Most individuals may not pay them, but then most individuals don't stay under the speed limit either. My organization certainly calculates and remits sales tax to the state of California for all out of state purchases; to do otherwise would cause trouble when the auditors come to call.

    The issue with internet taxation is whether states or other taxing entities can force out-of-state retailers to calculate and withhold the tax for them. Here the answer is clearly (at the moment) no, unless the business has a physical presence in the state (same as with catalog sales). Of course, without help from the retailer, the states have a hard time collecting tax. But just try to buy a car from a dealer in Oregon (with no tax) and import it into CA without paying CA sales tax. It doesn't matter how the sale takes place.

    In my opinion, the answer, given the increasingly difficult enforcement of sales taxes, is not to change the law to put the enforcement burden on (often small) private businesses, but to eliminate sales tax in favor of a more straightforward, progressive taxation system such as income tax.

  • I honestly think this is an excellent idea! From what I read, it appears that President Clinton is actually taking a (refreshingly) Constitutional approach. This is one of the few times Clinton (or anyone else in the past 140 years, for that matter) has actually decided that maybe states have rights to self-governance.

    Please don't get me wrong, I'm opposed to taxation of Internet sales, but I'm very much in favor of the states getting some of their Constitutionally guaranteed power back.

  • by Art Tatum ( 6890 )
    So basically what will happen is that different states will end up with yet another set of taxation rules...

    So? This is a federal system, under which it is (supposedly) assumed that public problems and needs differ from region to region. This way, the system is flexible. The states' rights have been declining steadily for quite some time now--it's high time we got some of that back.

    There's really no reason for things to be uniform other than some people don't like the world to be all messy-like. Should we get rid of time zones because they aren't globally uniform?

  • States *THEMSELVES* are an anachronism, and the debate on internet taxes demonstrates this.

    States are a good thing; and we have already gone way too far in implementing centralized governments. I don't know where you live, but if it's more than about 40 miles from where I live, you have completely different concerns and needs than I do. Even within a single state, there are wide-ranging differences in needs.

    For example, if one part of a state has a big seaport, it is very likely that their industries are almost entirely related to shipping. Meanwhile, in another region of the same state, logging is the most important industry. In yet another part of the state, heavy-duty manufacturing is king. I can guarantee that these people don't like having laws imposed on them that make sense on the other side of the state, but hurt everyone where they live.

    In addition to all this, there are cultural differences. Texas has a very different culture from Delaware. These people have widely different beliefs; a federal system allows people to keep local culture and beliefs while still entering into a beneficial governmental structure together.

    Far from being an anachronism, until you can get rid of the variation in natural resources and industries from one region to another, and eliminate cultural diversity and personal beliefs (which is a frightening and dangerous proposition, IMHO), local governments are a necessity.

  • Why should two people living a mile apart be subject to two different sets of laws just because they are on different sides of some arbitrary state boundary?

    Well, because laws have to be precise; people have to know what's legal and where it's legal. Unfortunately, "You seem to be a Dubuque kinda guy, therefore this law doesn't apply to you" doesn't really work. Just one of the necessary evils of the system.

    There's also a vast cultural difference between a lot of states in the US - think of the difference between California and Kansas for instance. The cultural gap between some US states is far wider than it is between many different countries across the world.

    I really see that as necessary. It just happens and there is nothing that can be done about it. The federal system is just a way to be flexible about these differences.

    Whilst the Constitution guarantees certain rights across the US there are a lot of things equally important to the welfare of a country, such as education, which are decided on per state basis which IMHO isn't right.

    Here, I really have a problem: I don't believe education is a responsibility of government. Government can only do those things which are public. Education is very much a private affair.

  • Education is one; clearly it benefits the individual, and it also greatly benefits society to have a large pool of literate workers and consumers rather than a horde of illterate savages.

    Of course, the result of our education system is, "a horde of illiterate savages." This is because our system makes cattle out of children. We treat them as if they were parts on an assembly line: a little poorly understood mathematics slapped on here, a bit of physics (also poorly understood) there, and you have the average American dolt. Education is personal, not public. It is entirely in the care of the parents and children themselves.

  • The Canadian gov't taxes us on blank cd's.. There's no end to what they'll try to tax us on. I can't wait for the day where we pay:

    $0.02 tax for using email/webmail

    $0.05 tax on isp dialup

    $0.01 tax on memory used by your perl script

    $0.15 tax on large software d/l's (ala gnu)

    $1.00 tax for trolling /.

    Honestly, I think government's will start taxing isp's, which will in turn bring up isp prices. Either that, or credit card portal's on the net and banks will be forced to place a tax on any online transactions.

    Screw this internet, I'm starting my own one.


  • .. or it will just push up server collocation, and everyone will run their servers out of the Christmas Islands, or anywhere offshore to avoid sales taxes. Found any good gambling sites running out of the States lately? (hi Starnet!)

    Hmm, good idea for a business plan right there. IPO anyone? ;)

  • True, but Al Gore invented the internet, and as our future president he can do whatever he wants with his invention. Hmm, maybe we can start taxing Usenet posts and IRC bots while we're at it. The day I pay an e-commerce tax on the pizza I just ordered from Pizza Hut, or the keg of beer I just bought offshore from is the day I move back into my isolated Y2K bomb shelter.

    I don't think that made sense, but nonetheless..

    - EraseMe
  • But what about goods that are sold within the same state? Why should online purchases be exempt, while mail order isn't? The only difference is the way in which the order is placed.
  • How are purchases made on-line different from purchases made through mail order? Aren't there already regulations for that in the US?
  • Clearly the Party is controlling many minds, even within the Slashdot community. Governments impose taxes to keep themselves in power not to serve the public. If they wished to serve the public they would form their own charities, schools, libraries, etc. as private citizens. Taxation is only a way to keep them in power. Brick and mortar merchants should not be arguing for a net sales tax. Instead they should be arguing for the end of existing sales taxes.

    So take the right pill and read Goldstein's book again.
    Stuart Eichert

  • by bbcat ( 8314 )
    The best way is for the government to pay the
    debt and then think about cutting taxes.
    Cutting taxes while we're in debt over our
    heads will trigger another Reagan style deficit
    to jack up the dept higher yet and force some
    more tax increases down the line.

    Those republicans sucking up to us with big
    promises of tax cuts are opportunists assholes.
    They talk about a simple tax, most likely
    replaced by a tax like the TPS in the Great
    white north or like European TVA to clean up our
    wallets. That flat tax bullshit would end up
    costing us more than our current income tax
    system. Luckily the jerk promoting it is history
    for now, we're left with McCain the national hero
    and Bush the one who sucks up to the fundies.

    If you look at who are asking for the internet
    taxes, for the most part republican governors.
    Sales tax doesn't affect big earners much but
    we in the middle are getting screwed big time.

    You may not care about how much other countries
    pay compared to us but you should realize that
    we got it good. Having worked for a few years
    in a high tax country I know how little tax
    we pay here.

    6% sales tax is a joke compare to 15% or 17%
    or more as in Canada and Europe.
  • It's Pat Robertson, no Buchanan. Buchanan is
    the idiot polititian while Robertson is the
    fundy idiot.

    The republicans don't like McCain so he's
    not going to be nominated.

    As for Gore, unless Bush wakes up and tells
    the fundies to go back to their cages, Al Gore
    will win in a lanslide and with a nice democratic
    congress and senate.

    If for some mysterious reasons Bush would manage
    to win, republican asses will get kicked out
    of the congress to force a check and balance
    to keep the president in line.

  • 1) Because all those people online are having FUN! The people who are NOT online can't stand it and want to put a stop to it.

    2) To generate funds for a manned mission to Mars [].

    3) To increase certainty and stability, since the only things you can depend on is death and taxes.

    4) Pay off the hugh US national mountain of debt - of course investors in T-bills won't like having their taxpayer "pay or go to jail" backed high grade securities, bonds and debt obligations retired.

    5) Bread and Circuses [] for all!

    6) Military buildup for upcoming nuke war w/ China over Formosa

    7) Funds for free health care

    8) Expand White House summer intern program

    9) Because everything is taxed.

    Finally, the top reason to tax internet deals:

    10) To fund the final stages of the US shift to global socialism, where there are no possessions! No work or need to compete for a living! Everything is free! The lion lays down with the lamb, and peace, harmony, sibling love and understanding comes to all, bombers turn into butterflys - This is the dawning of the Age of Aquarius...yada dada dada dada da.
  • I believe the point of the original poster was that tax should be paid on all sales, regardless of medium, not that it would be very good for the government to get more income through taxes.

    From a programmer's point of view, I applaud this attempt at introducing a little consistency into taxation, whatever non-altruistic motives may be behind it. It seems as if each new government creates benefits to counter the lasts governments raised taxes, making the legislation a kludgy mess.
    Oh, and for the "They will take all you give them" and "The people must say no": In a democratic country, you deserve your own government.
  • Usually, the tax is dependent on where the product is shipped.
  • I recently bought some software from a vendor on the Internet. Everything, including delivery and payment, was done on-line. I expect this will become much more common in the future as information content, such as audio and video, is separated from transport media like CDs and DVDs. What will the tax man do when anyone can buy a copy of the latest movie by downloading it over an encrypted connection from a virtual video store in Hong Kong?
  • This is something you have to decide for yourself. When it comes to books, T-Shirts, etc, I will purchase them online. I am not concerned that the item will be defective or bad. Computer parts, on the other hand, I will only buy from local shops. I don't want to deal with the hassle of returning bad parts via mail. I am lucky in that I have a local parts store that sells computer parts in competition with the online dealers, so I end up getting a good deal because of where I live.

    Even if you don't count tax, right now most online prices + shipping is about equal to the price of the same item in a store. Online stores don't spend money shipping stock to stores before it has been sold. They don't have to contribute any cash to paying some guy to vacuum a showroom floor everynight. I really don't think this is going to make too much of a difference.

    Bad Mojo
  • Constitutional or not, I know that in MY state, mail order and net purchases are the same. In the past, NC had not been enforcing the mail order taxation aspect of their state taxes. Now that they feel many more people are placing online orders, they are starting to try and enforce that tax.

    Personally, I feel that if you don't enforce something for a few years like this, you shouldn't be able to just prop it back up and revel in the number of people you catch violating a law. It smells of entrapment.

    Bad Mojo
  • You might expect a competitor and consequently increased efficiencies; it is not an entirely unreasonably proposition. However, if you look at the empirical evidence of many other subsidized industries this is not the case.

    Please remember that many of these brick-and-mortars have been in business for a long time, and as a result have developed certain efficiencies and managerial skills. Many of these Dot-Coms do not yet have this kind of talent, and, even with, competition, may never (in the short run) achieve the same efficiencies. Particularly, when "e-commerce" appears to be more of an "all or nothing" game...which is (or will be) unfriendly to later competition, even if the competitor technically posesses the potential to compete in the same ways exhibited by more traditional businesses.

    Also, in regards to your "other observation", my problem is less the "lack" of taxes, then it is with the differential. If the internet is really all that great, they shouldn't need an effective subsidy (over their brick-and-mortor counterparts)? Don't artificially put one at a disadvantage.

    anyhow, I dont have time to get into this right now, maybe later tonight....

  • Businesses recieve services from the state and should pay for these services. These services include Police and Fire protection, A court system to aid in collecting debts, and transportation services
    Sure, businesses should pay for some of the services they collectively recieve. But, let us not forget, that, Dot-Coms are businesses too. Although you might argue that they utilize these services less, and, as such, should have to pay fewer taxes. This is just silly though. Should I, for example, only half to pay half the licensing fees on my car, because I only drive a half mile to work? Of course not, society can hardly afford to get wrapped up in such debates.
    It costs me time and money to collect these taxes for another state. I recieve nothing in return.
    I was not advocating that the dot-com attempt to collect sales tax for out-of-state citizens (Although, I do not think it too would be difficult to correlate shipping addresses (not to mention credit card) with states, and merely tally them up at the end of the month); I was advocating taxes in a more general sense. Namely, that, at the very least, the dot-com would charge the sales tax for the state it is incorporated in on every sale (including out of state'ers). This would level the playing field in a way such that the firms compete on their own merits, not on the basis of some politicians or idealists that feel a particular business model is intrinsically superior, and deserves less tax.
    You have it backwards. A subsidy is a payment.
    From a financial point of view, it IS a subsidy. Not having to pay cash, that you otherwise would, is the same as recieving cash in the amount of the savings. Whether or not the government is directly giving you cash is totally irrelevant. Everything else being equal, you are enabled to sell your goods or services for less, yet profit more. It is a lose-lose situation for the brick and mortar.
    I am the one expected to pay. The local merchant is recieving the subsidy by being able to pay less taxes than the cost of the services he wants from his goverment.
    Huh? This is not coherant. You, the dot-com, are expected to pay what? Income taxes? We're talking about sales tax here. The Brick and mortar pays income taxes too, but also must accomodate sales tax pressures. I really don't see your reasoning for saying that the local merchant is recieving a subsidy.
  • Who said they must collect tax for each and every local government? When you drive to center city, they don't ask you where you live, do they? Wayne? Bryn Mawr? The merchant applies the tax for the area they THEY are located in (to the best of my knowledge).

    In any case, a 1% tax rate is pretty inconsequential, particularly when you consider that most shopping malls (e.g., KoP) and the like are located outside cities which impose such taxes. At the very least, internet firms should just apply the tax for the area (or state) they reside in. But, I do think it might be a bit more equitable and stable, to apply it based on customer state (and state alone) location.

    Also, even if it were necessary to apply each and every localities sales tax, the federal government, or some other organization, could easily compile a free database and update it on a regular basis to apply the total tax rate (e.g., based on zip code), which would serve as the official measuring bar. In other words, the internet firm could only be held responsible for updates which make it into the database. I know if I had the necessary information, I could easily compile such a database and impliment it.

    One final point: These overtaxing governments haven't gone bankrupt yet from more than 100 years of mail order, have they? And I've seen many sites asking residents of $STATE to add the sales tax.

    Mail order firms don't comprise that large a part of our economy. Furthermore, mail order firms DO have to deal with state sales tax (they don't to my knowledge worry about city/county taxes...except for perhaps certain major cities).

  • The primary issue here is the DIFFERENCE between local merchants and internet merchants, other information is simply extraneous.

    Sales taxes and property taxes pay for local services. I allready pay these. I pay for the services I use.

    Huh? What is it exactly that you are arguing here? That you should only be required to collect sales tax for residents who live in your state? Or that you shouldn't have to collect any sales tax at all? It would seem as if you are leaning towards only collecting for in-state customers, but it is far from clear.

    It costs me money to collect taxes. The other states get the value of an unpaid tax collector

    I wasn't strictly arguing that you should collect for other states. I was advocating, that, at the very least you should treat all transactions as if they're in-state sales, and send all that money to your state--that would atleast put you on a more level playing field.

    Furthermore, even if you had to collect for other states, the costs (if properly implimented) would be nominal, mere fractions of a penny per transaction. In this case, the federal government or some other federally recognized organization would be responsible for compiling a database of tax rates and issuing quarterly updates to all who need it. The Dot-Coms would only be held responsible for rates which correspond with the updates, not the "actual" rate of the locality at any given moment. I, and most other e-commerce sites, (atleast those who are half compotent) could intergrate these rates into their existing software quite easily.

    The burdens put on local merchants under your scenario, far outweigh the burdens imposed in either of my scenarios (e.g., treat all sales as in-state, or apply the rate matching each customer's state) on e-commerce. In your scenario, the average dot-com is enabled to sell for much less (huge competetive advantage on certain items), while enjoying higher margins (assuming they're anywhere near as efficient), merely because some politicians (and people like yourself) happen play favorites (under the mistaken belief that the internet, in and of itself, is the best thing since sliced bread). In my latter example, when customer A, who lives in PA and has a choice between DotCom or BrickAndMortar (next door to the customer) on the same commodity item, both will have the same essentially the same tax rates and associated costs (proportionately, plus or minus a fraction of a penny). The decision will be based on who actually provides the best service and the lowest price (due to efficiencies, not tax considerations).

    It ammounts to a tax placed on me for services that I can't use. When I collect taxes on my local sales the money my state saves pays for services that I use. When I am forced to spend my money to help pay for services in another state, I am being forced to subsidise those services.

    This 'usage' argument is silly. Under the same reasoning, should I only have to pay 1/10 what everyone else pays to use the roads, because I only drive on a small fraction of them? Society simply can't operate remotely efficiently like this.

    Furthermore, the fact of the matter is that you ARE using many out of state services, whether or not you realize it. For example, to merely complete the transaction (in an immediate) sense, you rely on: that state's roads to transport your goods, the police to keep your shipments safe, and many other things. Then you have the associated and secondary costs that are necessary to conduct business. Such as courts to resolve disputes or fraud in your sales and police to arrest criminals. In addition, and perhaps most importantly, you must not forget that YOU benefit from OTHER states prosperity. In order to maintain a strong economy, that state needs a strong highway system, schools, hospitals, courts, police & fire protection, telephone companies, a prison system (to lock the criminals up), and many other things. These cost the state money, which means they need tax revenue. Given that sales tax comprise roughly 30% of most states revenues, and that internet sales could theoretically (huge emphasis) eat most these sales up, something must give.

  • by FallLine ( 12211 ) on Wednesday March 01, 2000 @05:58AM (#1236157)
    Not taxing internet businesses is effectively a subsidy. It can breed a less than efficient market place. For example, let us suppose that dot-com, company A, in PA has no sales tax to contend with. While brick-and-mortor, company B, has a 5% sales tax. This means that company A can sell for, say, 3% less even though they're enjoying 2% more profits (and perhaps 1% less efficient).

    The fact of the matter is that sales taxes comprise approximately one third of state sales revenues. When, and if, internet sales replace brick-and-mortar sales, this is going to be a major issue. The state governments are either going to need to reduce services (and/or improve efficiency) by 30%, or increase other forms of tax revenues. They might decide to tax brick-and-mortars more to make up for the lost revenue. Meanwhile, the government is effectively GIVING that Dot-Com a little less than 5% on each sale it makes.

    Put simply, not taxing the internet is asking for inefficiency. While you may be correct, that Dot-Coms have to contend with shipping costs on high-dollar/low bulk items, this is rather nominal. Furthermore, Brick-and-mortars have increased overhead (e.g., retail presence, real estate, liability, etc)...all which ARE higher than shipping costs on most items sold over the internet.

    If Dot-Coms are offering a better service (e.g., lower prices as a result of lower overhead, better customer service, better inventory, etc) to customers under the same tax footing, I have no problem with dot-coms gaining market share (frankly, I think most are offering inferior service for the time being). But if you, the dot-com, have shipping lag-time, increased costs, and many other problems, you are offering your customers a worse service than those brick and mortars. If your only area of differentiation is price savings for the consumer, and this is strictly (or even mostly) the result of tax exempt status (read: subsidy), then YOU don't deserve to be in business (This has little to do with "fair", it has to do the aggregate economic effects).

  • It's your imagination. The Constitution is not "just a set of laws" (see "Bill of Rights" for further details). It *is* the bible for US Government, and when push comes to shove it is always right. If "something" goes against the Constitution, and you don't like it, you have to pass an amendment to the Constitution (see "Emancipation" and "Prohibition" for further details), which is *damn hard to do* (see "always right" for further details).

    US law is a combination of legal precedent and Constitutional law, which tends to trip most folks up (as opposed to UK, which is legal precedent through and through). Legal precedence in the US, when cases bubble up to the Supreme Court especially, involve that Court's interpretation of the Constitution (or, much more commonly, a precedent based on same).

    In summary, it doesn't matter how many people get shot. If you want to ban guns "forever", you have to amend the Constitution. Good luck, you'll need it.

  • Hal Varian [], an economist at UC-Berkeley, suggested a simple way around the problem: Repeal state sales taxes, and increase state income taxes to make up for the lost revenue.

    If an income tax exempts savings and charitable donations, then it has almost the same economic effect as a sales tax -- any income that you didn't save (or give away) was, by definition, spent on something.
    "But, Mulder, the new millennium doesn't begin until January 2001."

  • I hate paying taxes as much as the next person, but my reason for hating paying taxes is not the tax itself, but my impression that I'm not getting much bang for the buck. There are countries that have similar or lower tax rates to the United States but yet most of them provide GOOD public education, free college tuition and free health care. Frankly though, I think that if we are going to take issue with the notion of taxes, then we should try to work against taxes (or better yet governement reform), in a way that helps all people. The problem I see right now is that the poor, who don't have computers or Internet connections, not only miss out on the educational benefits of the Internet, but get doubly screwed because they have to go to brick and mortar stores and pay sales tax. A person with more money can avoid this very easily. My only hesitation in permitting states to charge sales tax to purchases made on-line is that the web of taxes will make life inordinately complicated for businesses. Furthermore, I'd be that these taxes would only apply to on-line purchases, not catalog purchases which are essentially the same thing and have gone untaxed for years. It will be interesting to see what happens to the whole consumer e-commerce thing when: 1) You have to pay sales tax 2) You have to pay shipping 3) You have to pay the same price on-line as you do at a brick and mortar store


  • Ever watch any of those insipid infomercials? Heck, consider just about any commercial selling music/kitchenware/exercise equipment/... you get the picture. They clearly state that residents of the state in which the business is located (and typically one or two specific other states) must include x% sales tax. Now, if you live in one of the other 46-48 states, you pay no sales tax.

    Is Congress considering taxing these transactions? Not that I've heard of. (Of course, I'd better keep my mouth shut lest some minion of Congress is reading /. this morning.)

    IMO, internet sales are no different. I could live with taxation of goods involved in intrastate commerce, but interstate commerce is another matter.

    Others have clearly outlined problems with taxing interstate commerce, so I'll merely sum them up. Would taxes be based on the state the company ships from or the state in which they are incorporated (what about small e-commerce sites that aren't incorportated... are there any?). Maybe BOTH states will want their own cut. 12-15% sales tax on e-commerce will put a serious damper on continued growth. Another option would be to assess tax based on the location of the customer. But then a business will have to keep up to date on the tax laws in all 50 states, not to mention foreign practices when shipping overseas (or is banning international e-commerce next on the agenda?).

    In short, this has many of the same problems as passing legislature regarding the internet. There are no such things as "local standards" on the web. What the US outlaws, other countries permit, and accessing hosts outside US jurisdiction is as easy as clicking a link or typing a URL.

    My message to Congress is this: Listen to your informed constituents. They certainly know more about this matter than you could ever hope to know... it's their jobs and livelihood. You are supposed to be comprised of representatives of the people. Represent us! Oh, and try to do a better job in the future...

  • If you want to [do something against the Constitution] you have to amend the Constitution.
    You wish.

    What about the Brady Bill? What about all this "hate crimes" legislation? What about Federal prohibition of certain substances? What about the Federal ban on legitimate weaponry carried by legitimate, law-abiding adult citizens into the badlands of certain major metropolitan areas, just because they happen to be college campuses (q.v. Georgia Tech)? What about Federal intervention into healthcare programs, the generation of electric power and the marketing thereof to the people, the education of our children? The Document says provide for the common defense and promote the general welfare, not the other way around... (For those of you wondering about generating power, look at TVA... the Tennessee Valley Authority came into that area, arbitrarily took people's lands by flooding them, paid them a pittance, and sent them on their way. They took over the electric power business in the area with their dams, and justified it in the name of interstate commerce with the locks they built. Harrumph.)

    I could go on, but the fact remains that there is very little of the original Bill of Rights that really sticks absolutely anymore. What of the cases actually make it to the Supreme Court are usually ajudicated appropriately, but how many of us have the resources to fight a case that far? Damned few. I have several cases I would like to bring, mostly involving illegal random searches, and one involving intimidation by a certain small-town Georgia cop, but even at my salary I can't afford the bevy of lawyers it would take to do it justice (pun intentional)...

    Which is a damned shame and tends to give me an itchy trigger finger.

    Freedom is built on four boxes: Soap, Ballot, Jury, and Cartridge.

  • by funferal ( 25312 ) on Wednesday March 01, 2000 @03:15AM (#1236178) Homepage
    Taxation funds the activities of government. In my country (Ireland) the main areas are Education, Health and Social Welfare. These alloacations are decided by the representatives of the people in the annual budget. Within certain bounds, the necessary tax rates are decided based on the amount of money which the legislature want to spend. I believe that the tax take should be fairly spread amongst those who are able to pay - this is easier to see when talking about income tax, but also applies to sales taxes and the like. In certain situations it may be decided to give an exemption to a certain class of business or area of society. This is usually for one of a small class of reasons: - The cost of regulation and collection would outweigh the money received (or make the collection too inefficient to be worthwhile) - A tax break acts as a form of subsidy for a socially worthwhile activity. For example, the income of artists is tax-free in Ireland, since art/culture is seen as something that society should support. - A tax break is necessary to encourage economic development, increasing employment or supporting a sluggish industry or economy. In this case, the 'trickle-down effect' ensures that society gains more than it loses in fore-gone revenue. I am unconvinced that any of these situations applies to the (now booming) on-line economy. Even if tax breaks are allowed to encourage the development of on-line commerce, these should be fazed out over a period of time. The point has already been made that on-line sales mean lower sales off-line. If the same tax-take is collected from off-line retailers (with no input by on-line sales) the percentage tax on off-line sales increases, making them even less attractive to customers. This would seem to be an unfair distoortion of the market. Incidently, if on-line sales are allowed to be tax free, I can see a situation where retailers will install terminals in their brick-and-mortar shops to make _all_ sales technically be 'on-line'.
  • by Bob-K ( 29692 ) on Wednesday March 01, 2000 @05:38AM (#1236179)
    If the states were really concerned with leveling the playing field for their retailers, they'd cut their own sales taxes.

    State treasuries are awash in money, to the extent that even politicians are embarrassed to ask for more. The "fairness" issue is simply an excuse to raise more money, while pretending to help the retailers. Phooey.
  • You would think that consumers going to the net for products to avoid paying sales tax would tell the government something. TOO MANY TAXES? I know everyone's probably heard this before, but we're paying FAR more in taxes today than what caused the revolutionary war. Just because we're a larger country doesn't warrant taxing everything..

    Think about it, sales tax, gas tax, taxes on your phone bills, taxes on cigarattes, taxes on your income... Aren't there laws against double-taxation? Well, you would think after they tax your income, they wouldn't be able to tax you on things you purchase with that income, right?

    God bless the US Government.
  • It's interesting this topic comes up today. I just read an editorial in Newsweek suggesting that internet sales should be taxed. For what it's worth, I have written my senator regarding the issue.

    I see some very real flaws in the argument that not taxing internet sales amounts to an unfair subsidy. First, it seems based in the wrong-headed assumption that everything should be taxed. It is an extension of the absurd notion that wealth belongs to the government and the government "allows" people to gain wealth. This is just backwards. People could gain wealth just fine without government. However, governments usually gain wealth by taking it from their population.

    Second, let's talk about taxing entities. Do I have to pay California sales tax if I order a NIC from a company in California? If so, why don't I just go with a different company in a less-taxed state? If the states set and collect internet sales tax, we will undoubtedly have a few states which will NOT tax goods sold over the internet. They will do this to spur growth of technology companies in their states. Smart companies will incorporate and locate in those states and internet-based business in the other states will dry up. Ever wonder why credit card companies are concentrated in a handful of states? It's because the laws in those states are favorable to them.

    So, if there is no state internet sales tax, then it should be federal, right? The federal government could just collect the tax and give the money back to the states, right? Wrong. This gives an unfair advantage to brick-and-mortar businesses in states which do not impose a sales tax. Wasn't this all about fairness?

    Well, maybe the federal government could just keep the money. The problem here is that the federal government is not in the sales tax business. Nobody wants it in that business -- not the states and certainly not us, the loyal subjects. It might pass if it was offset by a decrease in income tax, but Congress has this neat way of forgetting about tax cuts. We will end up with a net increase in taxes. I guarantee it.

    The argument for internet sales tax keeps repeating the word "fairness" but since when has business been fair? It's not fair that companies who have yet to show a profit get to go public with huge market caps. It's not fair that the infrastructure costs for an internet business amount to a few servers, software, and bandwidth.

    "Fairness" has nothing to do with it. It's about money. It's about government getting a slice of a real free market. It's about preserving for nostalgia your aunt and uncle's general store.

    It's not fair that your delivery service switched to trucks when everyone else was using horses and buggies either. Business is not fair. Deal with it or get out. It's time for your aunt and uncle's general store to pony up for some server space and SSL.

    And no, it's not fair that brick-and-mortar businesses have to deal with state sales tax hassles. However, the solution is to ease their burden, not put the same burden on others.
  • by deacent ( 32502 ) on Wednesday March 01, 2000 @05:26AM (#1236182) least, if the state that you live in taxes the type of purchase that you made (typically goods as opposed to services). All states that have sales taxes in the US also have usage tax. The rules regarding usage tax may vary a little from state to state, but the general rule is that if you purchase goods and have not paid the amount of sales tax that your state would charge you at, you owe the state the difference, typically paid on your next income tax form. The usage tax exists to protect local businesses from the difference between tax rates in different states, so I see no need for the feds to interfere on this one as long as the states are good about collecting. Of course, this is a very difficult thing to do unless they happen to catch you in a random audit, but the penalty tends to be pretty hefty (in CT, it's a fine up to $1000 and/or year in prison plus the tax that you owe).

    See es.htm [] for more info about which states tax what.


  • >Do you drive on the roads in your state?
    I pay a fuel tax everytime I buy gasoline.
    >Did you go to public school?
    My parents paid school taxes on thier home.
    >Will your kids?
    I pay school taxes on my home and buisness.
    >Do you enjoy having a fire department?
    I pay ad volorum taxes on my home and buisness.
    I also pay sales taxes on products I buy locally and state income taxes. I am paying for the services I use. What services will a state a thousand miles away offer me? I won't be driving on thier roads. Neither myself nor my kids will attend thier schools. The fire department isn't going to drive a thousand miles to put my house out.
  • Businesses recieve services from the state and should pay for these services. These services include Police and Fire protection, A court system to aid in collecting debts, and transportation services. I allready pay taxes to the state I live in for these services. It costs me time and money to collect these taxes for another state. I recieve nothing in return. You have it backwards. A subsidy is a payment. I am the one expected to pay. The local merchant is recieving the subsidy by being able to pay less taxes than the cost of the services he wants from his goverment.
  • Sales taxes and property taxes pay for local services. I allready pay these. I pay for the services I use.
    It costs me money to collect taxes. The other states get the value of an unpaid tax collector. It ammounts to a tax placed on me for services that I can't use. When I collect taxes on my local sales the money my state saves pays for services that I use.
    When I am forced to spend my money to help pay for services in another state, I am being forced to subsidise those services.
  • by thales ( 32660 ) on Wednesday March 01, 2000 @04:31AM (#1236188) Homepage Journal
    I am starting an Internet business, and I would like to know what services states I don't live in are going to offer me in return forcing me to be a tax collector for them? Nothing. How much do they plan on reimbursing me for the costs of collecting the taxes? Nothing.
    I keep hearing about the so called advantage no taxes gives me, but what about the advantages a local merchant has over me? His customers can leave the store with the product today. Mine have to wait at least a day for shipping, longer if they don't want to spring for overnight air. His customers don't have to pay for shipping, mine do.
    Then there's the biggest advantage of all. SERVICE. There is no way in hell I can offer the kind of service a knowledgeable salesperson, that is speaking directally to a customer, can offer. His customers can get an answer in seconds. Mine have to e-mail me and wait for a reply.
    Businesses with good customer service have nothing to fear from the internet. Businesses that hire high-school dropouts that can barely run a cash register are the ones in danger. Any local merchant who can't compete with the advantages he allready has desreves to go bankrupt.
  • There are good things and bad things about taxes. Good things are police protection, schooling, roads, etc. The bad thing is that they distort the workings of the market.

    So is the solution to the distortion problem that we should make only a subset of businesses shoulder the entire tax burden?

    There are practical problems with sales taxes on the Internet; chiefly that you have deal with the tax systems of dozens of different states. All the more reason to do it on a nationwide basis, so you have to deal with one tax rate and one tax collector. The revenues would go to the state of the purchaser. You can provide a breakdown of gross sales by state, can't you?

    In effect, in the US, the Internet would be a 51st state with respect to taxation.

    I'd peg the US sales tax rate on the Internet to the mean sales tax by total revenue. In other words divide the total tax revenu in all 50 states by the total sales taking place in those states. That way, on average, you are at no disadvantage or advantage to some brick-and-mortar store in the US. Let's say it amounts to 3%. At the end of the quarter, you just provide a breakdown of gross sales by state and a check for 3%, and the tax man takes care of the rest. Would that be so horrible?

  • He said: "I would like to know what services states I don't live in are going to offer me.

    How is his product going to be shipped -- by air drop? I bet he uses the roads in your customer's state.

    The state is providing for the welfare and education of his customers; what would happen to his customer base in that state over the long term if there were no education?

    I think the sticking point is the idea that the tax man is "taxing me". What actually is being taxed is the transaction. Making the merchant collect the taxes is purely a matter of practicality. We could make the individual collect the tax, but it would be more costly since there are many more individuals. Also, the tax man would need a complete record of every purchase you made; this would not only be impractical, it would be downright creepy.
  • Article 1, section 9 does not prohibit the Feds from taxing interstate commerce. See the GPO's excellent annotated US constitution [].

    "This prohibition applies only to the imposition of duties on
    goods by reason of exportation. 1770 The word ''export'' signifies
    goods exported to a foreign country, not to an unincorporated terri-tory
    of the United States. [1771] A general tax laid on all property
    alike, including that intended for export, is not within the prohibi-tion,
    if it is not levied on goods in course of exportation nor because
    of their intended exportation. [1772]".

    Otherwise clause 8 prevents a taxation upon exports between states by reason of their being exports, or to favor one state over another. Even this is somewhat weak, since the courts have ruled, for example, that the feds can impose a windfall tax on Alaskan crude, because it was based on concerns other than geographic favoritism.

    >> The constitution (amendments) says the states (not the federal) have the power to tax but not the right to tax (federales have nothing)

    Actually article 1, section 8 specifically grants congress this power, with limitations:

    SECTION 8. Clause 1. The Congress shall have Power to lay
    and collect Taxes, Duties, Imposts and Excises, to pay the
    Debts and provide for the common Defence and general Welfare
    of the United States; but all Duties, Imposts and Excises shall
    be uniform throughout the United States.

    Section 9, which specifically limits the powers given in section 8, prohibits direct taxes except in proportion to enumeration. What constitutes a "direct" tax as opposed to an "excise" or "duty" is a somewhat murky and technical and has changed over the years. By the late 19th c., prety much only income tax and property tax were direct taxes are direct tax. The sixteenth amendment allowed income taxes.
  • Getting back to your point, do all governmential entities -- including towns and counties -- deserve a 'value added tax' for providing the physical corridor to the final customer. You can bet that's going to be one of the arguments!

    Thank you for your thoughtful response. I think that you are missing an important point here. The point isn't just the roads, its everything the local government provides to make the transaction necessary. Does Amazon benefit from the fact that its customers can read? For that matter, any form of mass e-commerce depends critically upon widespread literacy, until a purely pictorial GUI is invented.

    There is also reciprocity involved here. Suppose I live in Georgia and buy a book from a reseller in Oregon. This weakens my tax base here, so taxes have to go up, further skewing commerce towards the out of state sources. Next, the owner of the Oregon bookshop buys a computer over the Internet from a vendor in Geogria, and Oregon's tax base suffers.

    My position is not that more taxes are inherently good, but that more broadly based tax is inherently fairer, tax revenue being equal. Different modes of business have different advantages. Traditional businesses have the advantage of face to face contact and the ability to walk away with the product immediately without shipping costs. Net businesses can shave facility costs and amortize those costs over a larger geographic user base. These advantages and disadvantages are inherent to the mode of doing business. From a classical economic theory point of view, the mix of providers in each sphere is likely to be optimized with respect to the total resources required. A tax advantage for one mode of business is an artificial advantage, not a natural one; it skews the naturally optimal division between traditional and e-business.
  • That is, a 51st state with no constitutional right to tax in this manner. The Feds ONLY have the right to tax interstate commerce, NOT intrastate commerce.

    The Federal government does indeed have the right to tax commerce. In the 1970s, courts found the "windfall profits" tax on Alaska crude to be constitutional. The constitution prohibits a Federal government from levying "direct tax", but it may levy an "exise" tax or "duty" so long as it doesn't do it any geographically biased manner. The distinction between these is rather arbitrary, and thus highly technical.

    Based on what? Where the seller is, or where the buyer is? Or a split? You're right, this is *exactly* what we need. More government, wasting more money, causing more overhead, for no benefit. Excellent!

    You should read more carefuly before you post. I don't advocate that overall tax revenues increase or that the federal government receive the revenues. I recommend the feds administer the system in order to prevent the Internet businessma from having to deal with 50+ tax agencies and rates. In fact, I advocate that the states receive the revenue in proportion to the dollar value made by buyers residing at them. What the states do with the money is their business; they can, for example, reduce conventional sales tax rates proportionately.

    Lol. Like boiling a frog, I guess. Lets see, I've *already* paid the Feds 39% of my salary in income tax, and now you want to give them an *additional* 3%. That's on top of the 4% sales tax i pay to the county, and the 4% sales tax I pay to the state. WE HAVE A BUDGET SURPLUS, and they want MORE tax revenue? Get the hell outa here.

    How can you complain about such as tax being on top of an 8% sales tax you currently are not paying? In fact, since I advocate your state receive these revenues, they could choose to reduce their local tax rate in compensation, to spur local businesses. This will also improve the property tax base.

    In general, if you think taxation is destructive, then you should think that unfair taxation is more so.
  • This is getting ridiculous. I already pay taxes on the internet. We pay taxes on telecomunications of every kind. We pay taxes on our harsware. The Ecommerce sites pay taxes on their income. We pay taxes on our shipping fees.

    Now they want to add another tax to Ecommerce. This is ridiculous.

    It may seem unreasonable that taxation is so all pervasive -- but unless taxation is all pervasive, some people will have to pay taxes and others will not, for the very same thing. I do not see how this can be considered fair.

    You may reasonably feel the overall level of taxation is too high. In that case I suggest you vote for somebody who wants to reduce government spending, rather than somebody who believes the tax burden should be shifted from one set of transactions to another, except to bring them into parity.

    As far as Article 1 section 9, this has been ruled to apply only to exportation to outside the US. I suggest you look in article 10 provisions against "direct" taxes. However these are highly unlikely to prohibit an e-commerce tax, which may be considered to be an "excise" rather than a "direct tax".
  • by hey! ( 33014 ) on Wednesday March 01, 2000 @05:58AM (#1236196) Homepage Journal
    Yes, I realize that some little bit of government will always be necessary, but that little bit that performs the legitimate functions of a government is pretty cheap

    Cheap != Free. Last time I checked, defense, law enforcement, building prisons were not only not free, but they were rather expensive items.

    It is inefficient; ask any economist.

    You need to talk to more economists before you make this argumentum ad verecundiam (appeal to authority). You may be surprised to find that there is quite a diversity of opinions on most topics, and the view you cite is decidedly a minority one. I am not an economist myself, but this is my understanding of the issue.

    Markets work on the assumption exclusivity. In other words, when I buy a TV, I'm buying it for my benefit, not yours. It is usually agreed that their are "public" goods -- things which need to be paid for whose benefits are entirely or partially non-excludable. An example is national defense. These goods are the necessary province of government to obtain (although not necessarily produce -- a government might decide to pay mercenaries for national defense, for example). Defense is a pure public good, in that there is no exclusive benefit. By definition, there can be no market for the product national defense.

    There are two problems with public goods. First, there is no way (or at least it is very difficult) for a market to find an optimal distribution of resources between private and public goods. It is entirely a matter for rational discorse, for which we rely, unfortunately, upon our political system.

    Another problem is that there are many important goods that have both exludable and non-excludable benefits. Education is one; clearly it benefits the individual, and it also greatly benefits society to have a large pool of literate workers and consumers rather than a horde of illterate savages. In the US, education through the High School level is largely treated as a public good.

    In other countries, health care is treated as a public good, although clearly there is a large private benefit involved.
  • by MrP- ( 45616 ) <jessica AT supjessica DOT com> on Wednesday March 01, 2000 @01:59AM (#1236205)
    if we pay taxes on items off the net, why not on, so what it will cost more, if you're going to buy online you pay for shipping anyway so you are going to spend more than just going to a store..... hey at least they arent going to tax us on internet connectivity (id have to die if this happened)

    $mrp=~s/mrp/elite god/g;
  • I can't see why the majority of Net sales should or even CAN be regarded as anything other than Mail Order or Telephone Service sales - obviously dividing this into cases where a good is delivered by post or electronically (online sales of something tangible) as opposed to cases were prices are charged for entertainment or other non-tangible services. Most countries already have policies in place to deal with these cases - why not just apply them???
  • by ronfar ( 52216 ) on Wednesday March 01, 2000 @04:33AM (#1236209) Journal
    It's called "selective enforcement," and it's one of the reasons I'm a Libertarian. You see, the government can pile up unenforcable law after unenforcable law, until it becomes impossible even for lawyers to fully understand what is or is not against the law. Heck, with this model, they can even put up laws that contradict each other.

    The key to making this model is that the police will then only enforce the law when it is politically expedient or profitable. The trouble with that is it can lead to a police state, in which the police can harrass the general population on a whim and then back it up with the huge numbers of ridiculous laws we've got.

    I used to live in New Jersey, and people from NYC would come there to shop, because the taxes were lower. Well, someone in New York government came up with the bright idea of sending cops into New Jersey mall parking lots and searching for New York plates. Later they would send threatening letters to the people who were shopping in the New Jersey stores saying, "You still owe New York sales tax and you'd better pay it!"

    This, of course caused friction between NJ and NY, and was eventually dropped (I think, I haven't been back in a while, it was back when Florio was governor of NJ.) Of course, the original reason that interstate commerce was supposed to be exempt from taxation was to help keep the country united so you wouldn't have a bunch of little wars between individual states, and its worked pretty well for years (well, except for a few little altercations in the past.)

    It is idiotic for the Federal government to allow individual states to tax the Internet this way, because the Internet is a national and International resource. The Federal government is supposed to be responsible for things which fall into the catagory of national. Personally, I don't think there is any pressing need to tax Internet commerce, but with all the hype about the Internet goldrush it is definitely going to happen. The rational way to handle it is on the national level, not the state level.

    Of course, I'd rather we didn't get these wonderful new taxes, but then I'd rather Harry Browne [] would be the next president rather than George Bush or Al Gore.

  • Or of course there is the simpler option.

    1) Some company writes a product that will do the tax submission and handling.

    In the travel world they are called "agents" and the online version isn't rocket science. In the same way as all online commerce people pay people like Datacash for credit card validation they will pay a tax-handler.

  • The hub-bub about E-Taxes and who pays what where is something that has been done and dusted (pretty much) in the shipping industry for over 100 years. The companies register themselves in the cheapest place to pay taxes, they register the boats in the cheapest ports with the lowest safety requirements. And then the country you are shipping TO takes its tax cut on delivery. Thus its the point of delivery where the tax occurs, no matter where you buy from.

    This isn't new someone has just whacked an "E" infront of it and bumped up the lawyers fees.

  • by Get Behind the Mule ( 61986 ) on Wednesday March 01, 2000 @02:10AM (#1236213)
    Also in the current Washington Post [], columnist Robert J. Samuelson argues the case [] for sales taxes on items sold over the net.

    He says that the present tax exemption is like a government subsidy for e-commerce businesses, and tends to promote waste, since inefficient e-businesses may still have a lower end price for the consumer. Hence there is an unfair penalty for brick-and-mortar businesses that may be more efficient but have to pay taxes.
  • by UnknownSoldier ( 67820 ) on Wednesday March 01, 2000 @03:18AM (#1236221)
    A rticle I, Section 9 []

    "No Tax or Duty shall be laid on Articles exported from any State. No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; nor shall Vessels bound to, or from, one Sate, be obligated to enter, clear, or pay Duties in another."

  • One of the great advantages of the net is that
    a small local vendor (your neighborhood bookstore)
    has an opportunity to impress global web buyers
    just as well as Amazon. As long as Amazon's
    tens and hundred's of web programmers continues to do stupid things and the small local vendor hires a smartie--we web buyers consider them equals--each with a unique service to offer.

    But no single smartie representing small businesses and small business websites can handle the statistical nightmare of modifying very website he or she is responsible for to handle 50+ different sales taxes, exceptions, forms generations. It's not so different than trying to handle 50+ income tax forms yearly. Human or superman programmers--no programmers can cope with that.

    But Amazon's army of 10 to 100 programmer can.

    Are we trying to turn the Net into something only the rich companies can afford to operate in?

    We will be if we pass this law.

    The founders of the Web made a point of keeping the Web infrastructure and software simple. With CGI, HTTP, XML. And the universal use of simple SQL (for the catalog), HTML forms (for the sales pitch), Perl/Tcl (for manipulating business logic) and JPEG (product pictures) made it easy for the little guys to get on the net. Let's try to keep in mind the spirit of the Net and consistently push for simplicity and equality.

    I think State-imposed sales tax on the net makes about is about as sensible as laws that brought us Segregation and restricting people to Indian Reserves. It's flawed logic and everyone gets hurt.
  • My comments are also limited the the US.

    The US Constitution prohibits taxes, levies and duties on items imported/exported between states. Duties, levies and taxes between states was one of the primary problems with the Articles of Confederation (that the US Constitution replaced) which formed the first Federal US Government. The States started all sorts of nasty trade wars.

    Not that anyone pays much attention to the US Constitution any more but...

    • Article I, Section 9


      No Tax or Duty shall be laid on Articles exported from any State.


      Article I, Section 10


      No State shall, without the Consent of the Congress lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.


    -Jordan Henderson

  • How is his product going to be shipped -- by air drop? I bet he uses the roads in your customer's state.

    The state is providing for the welfare and education of his customers; what would happen to his customer base in that state over the long term if there were no education?

    Suppose he ships it by UPS. UPS already pays taxes which they include in their shipping cost. The transaction occurs over phone/data lines, which the customer and merchant already pay taxes on, and so do the network providers in between. This of course is also passed to the consumer as part of the user's Internet access. As far as the state providing for the welfare and education of customers I believe that the merchant probably is paying taxes towards these things in the form of property tax, or as a portion of the rent (allowing the merchant's landlord to pay taxes on such things.) In the end, this filters back to the consumer as well. Not to mention that the consumer is paying taxes on the money they earn before they even get to use it.

    I don't see it so much as a question of "Do we need to tax Internet purchases" as "Do we need to add yet another tax to our transactions?"

    Of course I could be under the wrong in my assumptions. Perhaps they only intend to take as much taxes as they absolutely need.

  • Take it a step further. In the long run, internet businesses have the potential to do to brick and mortar retail outlets what WalMart did to your average "mom and pop" store. That is put it out of business.

    Its easy to take the short sighted view that whatever is good for Internet commerce is good for America (or Europe, or the world). It means cheaper purchasing online which is what a lot of folks really want. Heck I like it too.

    I'm just not sure I want to live in the town where all the stores went out of business, the sales tax revenue dried up, and the state had to increase income or property taxes to fund the schools and maintain the infrastructure. I dislike taxes as much as the next guy but it reminds me of the story of the well meaning town that brought pigs in to eat all the garbage in the streets only to find that the resulting "pig waste" was worst than the original problem.

  • From a legal perspective, it is the bible. If you can demonstrate convincingly that any given law goes against the Constitution (And by demonstrate convincingly, I mean get a court to agree with you) that law is nullified. That's why we don't have mandatory internet censorship here in the states, and why any such law put forth will be shot down. Actually ammending the constitution to nullify one of the original items on the bill of rights would be next to impossible, at least right now, because our politicians like their jobs with their fat paychecks and their perks and they know that nothing would turn the voters out faster than trying to muck about with those bits.

    Unfortunately the constitution was rather ambiguous on several points and so many issues are open to debate.

  • Remember back in the day when they were trying to decide bout BBS, about where the crime really took place if someone sent material from a place in which the material was acepted by community standards to a place where it wasn't? Well, way back then the courts decided they would mimic mail order policy. The sale takes place where the seller is, more importantly, where the SERVER is. Now, if they simply keep this law the same and implement Internet taxes, everyone will merely move their servers to another country and be immune to state and federal taxes on the sales. Hundreds of thousands of jobs will also be lost unless there is a programmer and sysadmin exodus to wherever the new servers are going to be placed.

    So, they will probably try to change the law so that if you buy something over the net, it is taxed based on which state you buy it from. This removes inventive to move the servers compeltely. However, logically, mail order laws would have to be changed as well. Also, the laws about transmitting indecent material will change. Now if you live in New York and someone from Bumfuck, Idaho goes to your site and its offensive by their community standards, you've just committed a crime. Across state lines.

    This could get very, very messy. I'm so not-worried about paying taxes on the stuff, I'm worried as hell about all of the fallout and all the things that this will make illegal by consequence.


  • I think it's idiotic that we spend all this money collecting taxes in a hundred different ways. All the time and energy spent collecting sales taxes could be better spent on something else.

    Instead of clamoring for net purchaes to be taxed *as well*, we/businesses should be using this as the right time to ask why we're collecting sales taxes at all when we have perfectly good income and corporate tax systems. Don't give me any bunk about 'fairness', I can't imagine any *supposed* functional distribution of tax against people that can't be transferred rather transparently within the income tax rules.

    So what is the historical history of sales taxes? Did they preceed income taxes? (which didn't come into existence until how late this century?) Were they originally introduced on selected items for good reasons, and then over 100 years simply spread to all items by Governments who at the time had no other revenue stream?

  • Hence, if anybody really wants to tax trade over the net there needs to be a clear descision about where transactions take place - and nobody wants to do that because all pure net businesses will instantly "relocate" for the tax advantages!

    I agree that this is an issue that will take a very long time to decide as it involves so many different countries and laws. In the mean time you're in a very uncertain position when it comes to internet transactions, which is probably why e-commerce is so slow in taking off over here in Europe.

    IIRC however the major credit cards here in the UK will insure purchases over the net irrespective of where it was purchased, so this is probably the safest way to go.

    As for relocations, if taxes are going to be levied in some countries then we'll certainly end up with about a dozen countries without these taxes which will end up hosting practically all of the websites on the net. This is similar to the way that almost all of the online gambling sites are run from a few countries - the Cayman Islands and Antigua IIRC.

  • I'd agree that the US state system is definately showing its flaws. It has worked as a way of organising a large population over a large area of land in the past but I'm not sure if it still working to benefit the US as a whole. Why should two people living a mile apart be subject to two different sets of laws just because they are on different sides of some arbitrary state boundary?

    There's also a vast cultural difference between a lot of states in the US - think of the difference between California and Kansas for instance. The cultural gap between some US states is far wider than it is between many different countries across the world. Whilst the Constitution guarantees certain rights across the US there are a lot of things equally important to the welfare of a country, such as education, which are decided on per state basis which IMHO isn't right.

  • Or are we planning on abolishing all local government right down to the municipal level?

    Well I do think that when talking about local government smaller units work better than larger ones. A town can enact rules which make sense for itself but might not for another town. And my point was really that the states have control over a lot of things which should really be decided at a national level because they don't really apply to states differently. I mean, education should be education whether you live in New York or Kansas. As for what system would actually work in practice, well your guess is as good as mine.

  • Okay, fair point about the moratorium. But I still think that allowing all the different states to make their own regulations involving net transactions (and I'm not just talking about taxes here) will lead to a lot of confusion - what counts for a customer in New York buying off of a company in Maryland whose servers are based offshore somewhere?

    And yes, I'm sure that the internet will be taxed in the long run - the moratorium is just to build up their tax base. But again you have to take into account the fluidity of the net - companies can relocate much more easily than their bricks and mortar counterparts.

  • by spiralx ( 97066 ) on Wednesday March 01, 2000 @03:30AM (#1236253)

    Or you could run all of your servers off of a ship out in international waters using satellite connections. This isn't really ideal from speed purposes, but would avoid all of those pesky regulations :)

  • by spiralx ( 97066 ) on Wednesday March 01, 2000 @02:09AM (#1236254)

    But many traditional retailers say they suffer an unfair disadvantage by having to add a sales tax to their goods in the 46 states that impose such a levy. Many governors and local officials fear a deep loss in revenue if online sales siphon business away from traditional merchants.

    Further complicating the issue is the existence of more than 6,000 sales tax jurisdictions nationwide, with widely varying rules.

    So basically what will happen is that different states will end up with yet another set of taxation rules that apply to internet sales. Seeing as how internet sales will generally occur across state lines this will result in vast amounts of confusion as different states attempt to try to apply different laws, and people and businesses will lose out from trying to comply with this patchwork of regulations.

    Clinton is obviously in favour of such a tax, and is trying to get enough states to enact it so that it becomes more and more difficult for the advisory commision or his successor to keep the moratorium in force.

  • Sooner or later there must be some kind of international agreement on this. Not on the tax rates or systems, but on who gets to collect the tax

    As I see it there are four options:

    1. Tax is collected where the selling company is located/registred
    2. Tax is collected where the buyer is located/registred
    3. Internet as a tax free zone
    4. Anarchy
    The first is the most company friendly solution. One set of rules to implement on your website. (of cource the buyer must learn to check what "Tax not included" means...)

    The second is a small web company's nightmare. Every freaking site owner is suddenly responsible for every freaking tax system in the world... Governments will like it though, since people don't move away from taxes to the same degree as companies.

    Tax free internet? Don't think so. Why should a net ordered item be tax free when the same item (maybe from the same company) bought "irl" is not?

    Anarchy is where we are heading now. Every government wants a cut. Fortunately they are not clueful enough to do something really clueless, like bit tax. or whatever...

    In the EU, every (web) company must implement the tax rules for member countries to which they sell for more than a certain amount. If they sell less, it is the customers responsibility to pay sales tax according to local rules.

    This version of alternative 2 or altenative 1 is probably where we will end up eventually.

  • Well as far as you collecting other states taxes I agree. However:

    If you can not think of any reason why your customers should buy from you other than differences in tax you should seriously rethink your business plan.

    If your plan is to sell something that is available locally everywhere, with worse service and slower delivery, hoping that tax laws will be in your favour forever, well, then your internet business will not last long.

  • You are right, of course. Otherwise there would not be many internet shops.

    What I was trying to say was that you cannot rely on "lower price through tax breaks"
    If that is your strategy, you are completely in the hands of the govenment. It is like some big ferry lines here in europe who relied on tax free liquor and tobacco sales to finance their ships.

    They sort of got in trouble when a inter-EU line no longer could sell tax free goods...

    The best of luck though!

  • But the main reason I buy so much online is because it _is_ cheaper. If it becomes the same price as in bricks'n'mortar shops, I'll buy a lot less online. CD's, DVD's, PC stuff, Books - all a lot less from web sellers than real shops.

  • by Conspire ( 102879 ) on Wednesday March 01, 2000 @02:24AM (#1236266) Homepage
    States have been trying to get taxes on mail order products for years, and some have passed laws that do tax out of state purchases. I would expect that some states will pass similar laws for internet sales, and some will stay in the clear.

    A bigger problem will come when the federal government places tax on internet sales, bandwidth or usage, or whatever. This is primarily because there is no such all encompassing tax at this point. Whenever you purchase something, the only tax that goes to the federal government is the wonderful corporate tax that those who sold it to you pay each year. There is no "transaction" tax on any transactions whatsoever that the federal government collects. This is because it is unconstitutional to do so.

    Now, IF the fed decides to make a "bandwidth tax" or a "transaction tax", which is what some are proposing now, that is a breech of our constitution. There is only one way to stop that, which is write your senators and congressman and tell them what you think about this, reminding them of what will happen to their job if they vote for any internet tax whatsoever.

    I hope you all write at least one letter. Otherwise, you should'nt complain when bandwidth or transactions or whatever gets taxed. After all, you never officially complained, did you?

  • He said: "I would like to know what services states I don't live in are going to offer me.

    He has a point. What is worse, is with global e-commerce, the issue is not states anymore, but rather COUNTRIES! This makes the whole issue more complicated.

  • Now I can't begin to say that I know anything about this subject, but isn't it less efficient to tax in lots of little places?
    actually since all transactions through the Internet it could probably be more efficient then with real life transactions. You got to realize that everything is stored in a database (if it is done correctly) So the only thing you would have to do is change the code of your accounting system in such a way that it takes that into account. And then it is all done. Sales Tax is either two tier or flatrate in most countries. So it should not be too difficult to implement this in an accounting system.

    Now with regard to your question on flat rate taxation. There is no reason not to use a flat rate taxation other then political ones. Many countries want the broadest shoulders to carry the heaviest burdens. On top of that tax is often used for policy reasons as well. The government in many countries for instance taxes cigarettes and alcohol extra, because it wants to have a negative incentive for the use of those products.

    And for all the paranoid out there, there is another reason to keep the tax system difficult. There is an entire industry of lawyers and accountants that feed on the difficulties to send in a tax form.

  • It's farly reasonable to assume that there wont be any major internet taxes imposed as any state will realise the danger of pushing business into other states and loosing out......

    One would expect this to be true but then again if states like Texas can ban online car sales by car manufacturers solely to preserve the position of middlemen (car dealerships), who knows?
  • by nels_tomlinson ( 106413 ) on Wednesday March 01, 2000 @04:44AM (#1236276) Homepage
    The unspoken assumption in several of these posts seems to be that taxes are a good thing, and there's no reason to keep the government from taking its share of the net, too. A better idea would be to level the playing field by eliminating all sales taxes, off-line and on.

    Yes, I realize that some little bit of government will always be necessary, but that little bit that performs the legitimate functions of a government is pretty cheap. A government should enforce our property rights, and nothing more. That includes most of criminal law, and specifically excludes "income redistribution", AKA theft.

    Even the socialists among you should be able to see flaws in the sales tax idea: it's regressive, and socialists are supposed to be against that sort of tax. It is inefficient; ask any economist. It causes underproduction and loss of welfare (in the economic sense of the word). Eliminating sales taxes would force the governments to collect the taxes more directly from the people. Yes, that's good. Then folks will see more clearly how deeply the government is gouging them.

    I think that the tax-free status of the net is a great chance for all of us who don't like big government at any level to push for the elimination of sales taxes in general, so that the brick-and-mortar guys can keep up, and so we can keep government in check just a little better.

  • I agree however the money from these taxes that the government ueses is extremely wasteful, and I don't mean our supposed "gigantic military machinery," which sadly if you know anyone in the military you would know has been cut ,relative to GDP increse, to such a point that many of our machinery is sitting in a desert in Nevada and Arizona being completely wasted, a.k.a not even being refurbished to be reused, just sitting.

    Yes I would like to get rid of the current tax system, why should I work and have 50%+ of my salary taxed by the government, s*** I mine as well go on welfare. I mean really though its sad when someone works a 10 hour shift and half of that is being used to pay for a government that waste our money as much as ours does.

    don't believe me about the 50% hey, add this up, which I have:

    state+local+federal+sales+property+etc..(little taxes which I don't know from offhand)= 50%+, some it may be slightly lower but in general middle class America is getting screwed, literally. I do however agree with your point that we do need taxes, what form can be debated, but your comment about or military or understanding why we are aggitated is slightly skewed.

  • Hal Varian, an economist at UC-Berkeley, suggested a simple way around the problem: Repeal state sales taxes, and increase state income taxes to make up for the lost revenue.

    That's a little too socialistic for my tastes. Here's an even better idea: Repeal the income taxes (federal and state), and replace everything with a sales tax.

    This would, of course, involve repealing the 16th amendment (otherwise, the government could slap us silly with federal sales taxes AND income taxes).

    The big problem I see with income taxes is that the burden is on those who produce, not on those who consume. In other words, those who produce the most (or have high paying jobs, or are shrewd investors) currently shoulder most of the tax burden. The net effect of a transition to the sales tax would probably be the same in terms of generated revenue, given that those who make more often spend more. But it might also have a postitive effect on the "buy-now-pay-later" mentality of the credit card age, in which people max out several credit cards and end up paying 18% interest until they die (or declare bankruptcy).

    If an income tax exempts savings and charitable donations, then it has almost the same economic effect as a sales tax -- any income that you didn't save (or give away) was, by definition, spent on something.

    This is a very good argument for sales taxes. I believe sales taxes would encourage people to save more, invest more, and give more to charity. Why? It'll shift the focus from material acquisitions (i.e. what I want) to more realistic views (i.e. what I need). And I don't know about you, but my money gets taxed regardless of whether it goes into savings or checking. Thank goodness for the 401(k) and charitable contributions!


  • If you're living in the European Union, you normally have to pay VAT on everything you buy (ranging from 15% in Germany to 25% in Sweden and Denmark). There are two exceptions, though: (1) If the product is worth less than appr. $10 and coming from outside the EU, you don't pay taxes. (2) If you're buying something from a company that sells less than appr. $50.000 a year to your country, you will have to pay the VAT in that country.

    A few examples from Denmark:

    • I buy a book worth $7 from I pay no taxes (but the shipping will be expensive, at least $6).
    • I buy a book worth $50 from I pay 25% VAT of both the book and the shipping at the time of delivery (appr. $50 + $6 + 25% = $70).
    • I buy a book from (which sells a lot of books to Denmark). I pay 25% VAT (but this amount will be added by
    • I buy a book from (which didn't sell a lot to Denmark last time I checked). I pay German book VAT (reduced-rate, 7% ASFAIK).

    It's really a mess, and I hope that the Commission will soon succeed in simplifying those rules.

  • by VirtualUK ( 121855 ) on Wednesday March 01, 2000 @02:02AM (#1236303) Homepage
    I don't see why the net should be exempt from tax. Just because the medium in which sales are made has changed shouldn't change everything else. Not taxing net sales, will only mean longer, higher taxation on non-net sold goods
  • I think this is a good thing, believe it or not. To not have any taxes on internet-sold goods is somewhat problematic in a few ways. First, it's blatantly unfair to those who dont' have access to technology--in a sense it makes lower class people who can't get on the web pay an extra tax compared to those of us who do have web access. In addition, not taxing internet sales in a way distorts consumers' priorities: consumers respond to incentives, and a tax-free way of buying something certainly is an incentive. The distortion of preferences is more dangerous in the long run. When people make their decision to buy solely upon whether or not they will pay a tax, other things fall by the wayside. I realize that it is up to the consumer what particular aspects of a purchase (s)he views as most important--and therefore choosing solely upon there not being a tax is his/her prerogative--but gov't sponsored (and by not taxing, they are in effect sponsoring) changes in peoples' preferences in the long run can be a bad thing.
  • From what I can see there are faar taxing systems

    If you ignore the stance of Nozick 'All taxes are theft' and other utopian libertarians you need to look at a fair tax method

    Personally I'm in favour of internet taxes if they are equivilent (and based upon) non internet taxes.

    A good example is the use of import and export taxes on goods bought from abroad.

    Use of internet specific VAT isn't really an answer as internet goods in the marketplace should not be differentiated against as this skews the balance of purchaces away from a stable equilibrium.

    Charging for bandwith can be brought into this system, but only if it is paid fo directly and only under a structure that taxes purchace of similar services such as VAT on phone costs, etc.

    Creating specific internet taxes is anti competitive and anti market forces.

    If they're not careful they'll get a slap from the invisible hand

  • Governments have a problem with taxation on the Internet. That much is obvious.

    The problem is not of the Internet, but of government.

    Government has built apparatus which effectively snoops on every financial transaction we make, to ensure they get their cut. The citizens have no choice but to pay whatever government demands, otherwise coercive measures are exacted.

    The internet changes the rules. Transactions can be encrypted, and happen across national boundaries in hyperspace. Governmments can't tax what they can't see. We have already seen the UK government the rapacious 'Regulation of Investigatory Powers Act', an immoral piece of legislation targetted directly at users of encryption. It is cited as a crime fighting measure, but I am sure they will get around to using this legislation to track 'tax evasion'.

    As I said, the problem is with government. The concept of democracy is a myth, when an elected party is in power unchallenged for four or five years, and runs the nation through a set of civil service administrators and other government employees, each with their own agenda. Current taxation is little more than institutionalised protection racketeering by the state. We have to pay what they demand for the services we need, or else.

    The Internet may force government to change. Instead of protection rackets, they may end up having to talk with people, to treat some people like valued customers. They may ultimately need to negotiate a fair price with some people for the services that those people want, on the pain of those people choosing to live elsewhere. Where this leaves those people who aren't 'some people', who are not in a position to negotiate, the poor, the old, the unemployed and the 'technically challenged' is a big social problem for the 21st Century.

  • by nomadic ( 141991 )
    I can't think of a single MAJOR difference between buying something online and ordering it over the phone. So it's a little easier, and a little more flexible. It doesn't have some moral superiority that people have tried to give to it; what seems to have happened is that people have mixed up the vision for the internet 10 years ago with the vision that corporate America has coopted. I buy a lot online, but I wouldn't lose any sleep if we saw a reduction in the e-commerce that has turned every web page into a billboard.
  • Supposedly Internet sales are dwarfed by catalog sales. If this is true, why all the fuss at the moment? Is this true?

    Having said that, does anyone know how the taxes are handled on catalog purchased world-wide? All I seem to see are notes on the purchase forms that say things like "if you live in X, add 6% sales tax".

  • Check out this article on Fast Company [] about taxing the Internet, and why they think it'll never happen. The author's claim is that the new reality of cyber-democracy (where, for example, Congressmen get almost instantaneous e-mail feedback from their constituents) will prevent any internet taxes from happening.

Last yeer I kudn't spel Engineer. Now I are won.