Yes, that's true but this has been a on going issue on Capital Hill for years and just wanting on that great opportunity to rear it's ugly head and take money. The Federal Government has been keeping close eye on America's spending habits on what they would think of as useless spending.
The Complications of Taxing Internet Commerce
The issue of taxing the Internet is complicated by several factors: a. With approximately 30,000 taxing jurisdictions, compliance becomes a significant obstacle. The Internet is inherently susceptible to multiple and discriminatory taxation in a way that commerce conducted in more traditional ways is not. Double taxation would be inevitable because the borderless nature of the Internet makes taxation very tricky. If we simply required that merchants collect the relevant tax for the jurisdiction into which the product is being delivered, such legislation would produce a world that is anything but "simple." Can you imagine the confusion that would arise in the case where a small business owner from New Hampshire (a state without sales tax) is required to collect the tax on a purchase made by a consumer living in the Dallas area-- a metropolitan area with numerous suburbs, several of which have different local sales tax rates, in addition to Texas' state tax? Or even more bizarre, consider Internet sales of shoes-- a product that is tax exempt in some states but not others, depending on such factors as whether the footwear in question is tennis shoes, "sneakers," or cleated athletic shoes.
(1) b. Since Internet commerce is so new, we do not know what the basic business model will look like in a few years. How can we know how to tax it? There are likely many adverse unintended and unanticipated consequences lurking in the future. c. How would the taxes be collected? One of the main benefits of Web-based businesses is that the ability to reach such a large potential universe of customers cheaply provides an opportunity for small one- and two-person companies to thrive without a tremendous amount of start-up capital. The cost of compliance and tax collection alone for these small businesses could be enough of a deterrent to keep them from participating in the marketplace. Clearly, compelling retailers to collect tax under the current jurisdictional regime would place a significant burden on merchants; and such a burden would likely not be uniformly felt across all retailers. If a recent study by the Washington State Department of Revenue is any indication of things to come, small businesses would be hit hardest with respect to the costs of compliance with multi-jurisdiction tax rates. More specifically, a recent study by one of the Big 5 accounting firms, Ernst and Young, has estimated the costs of compliance of small businesses to be close to 87 percent of the sales tax they collect--a far greater percentage than the 14 percent of the tax collected that it would cost large businesses to comply. While these costs might be eased by employing various software packages, such software can cost well over $ 20,000.
(2) In a time where technology finally makes it possible for virtually anyone to realize the American Dream by starting out on his or her own and creating a business from scratch, do we really want to place one more barrier to entry in the form of heavy compliance costs in front of these potential entrepreneurs that might otherwise fuel our economy? d. Another major enforcement issue is identifying the state, country or countries that have tax jurisdiction over income generated by electronic transactions. Electronic commerce permits a foreign person to engage in multiple business transactions with customers in the United States without ever having entered the country.
