The beginning of the commercial Internet was notable for an awful lot of stupid stuff that would have been merely dippy if it hadn’t led to the dot-com bubble and accompanying recession.
The ridiculousness started with young entrepreneurs who insisted that “Information wants to be free,” and who even more fatuously dismissed people who insisted that a business ought to turn a profit by accusing them of “just not getting it.”
It still beggars belief that banks went along with such idiocy, but then again, banks might have known it was nonsense but acquiesced in anticipation of making money on IPOs.
Another absurdity was the rationale for the law that prohibited the collection of taxes on sales made through the Internet.
The argument was that the Internet might fail if the companies using it as a sales channel had to collect the same taxes they would have had to collect using every other sales channel.
It was nothing but anti-tax populism dressed up as a stupid argument. Nobody in 1998 with two brain cells to rub together had any fear that the Internet would fail under any circumstances.
A less hyperbolic but still nonsensical argument was this: if Internet sales were tax-free, that would give small businesses, including the new dot-coms, a chance to compete. The supposed advantage was moot from the start: the channel was sales-tax-free for small and large competitors alike.
That small businesses all of a sudden had access to a national sales channel was and is far more important to their competitiveness.
That’s not to say that having a sales channel that is national and tax-free is irrelevant.
The paperwork associated with collecting interstate sales taxes can be overwhelming for a small business.
So that’s the one and only good reason to prohibit sales taxes specifically on the Internet – to relieve the accounting burden on small businesses.
But now Rep. Anna Eshoo has introduced a bill that would amend the original Act that created the temporary moratorium on Internet taxes (until 2014) to make the blanket sales tax exemption permanent. It would be more sensible to amend this amendment further, to make the tax exemption permanent only for small businesses. The only reason to pass the bill as currently defined is opposition to any taxes at all, and if you’re honest, that’s a separate argument entirely.