Page 234 - Business Principles and Management

Chapter 9 • E-Commerce

Focus On...

Tax Ethics–Tax Fairness and E-Commerce

Sales of products and services on the Internet have exceeded almost
everyone’s expectations. Although e-commerce sales of both con-
sumer products and business products are a very small percentage of
the total sales of goods and services in the United States, there is a
mounting complaint from bricks-and-mortar retailers and from state
and local government officials. The complaint: e-commerce companies
are not currently required to collect sales taxes on the products they
sell over the Internet, although some states require them to do so
when they sell to customers within their home state.
Sales tax in most states is a small percentage of the cost of the pur-
chase, usually 3 to 5 percent. So why should this tax matter to other
businesses and to the government? Just look at the total amount of
dollars spent on Internet purchases. When you take that figure and
apply the sales tax rate, it amounts to millions of dollars. State gov-
ernments are missing out on a source of revenue that would help
them balance their budgets.
Bricks-and-mortar businesses say it is unfair competition. Sales tax
increases the price of products to customers. Traditional businesses
believe that if e-commerce businesses don’t have to collect sales tax
from customers, they can sell their products for less, gaining an unfair
advantage. Traditional businesses feel that if they must collect and
pay the tax, e-commerce companies should as well.
On the other hand, e-commerce businesses say that customers
already pay taxes for access to the Internet. Telephone companies
and Internet service providers that provide connection to the Inter-
net are required to collect federal and state taxes on their services.
E-commerce companies also suggest that eliminating the sales tax
does not reduce the cost of products purchased online, because
they charge shipping and handling costs that are much higher than
the amount of the sales tax.
It would be very difficult for an Internet business to collect sales
taxes imposed by each state and city. The tax rate would differ for
each location and might change regularly. Each business would have
to collect the correct amount of tax based on where the customer
lives and then send the tax to the correct state or city.
Think Critically

1. Currently in many states, some products (such as food and
newspapers) are not subjected to sales tax, and other products
(such as automobiles and business equipment) have a lower
sales tax rate. Do you agree that all businesses should be
treated equally in the amount of taxes they are required to
collect? Why or why not?
2. If e-businesses are required to collect sales taxes, what do you
believe the effect will be on Internet sales? Justify your answer.
3. Use the Internet to find recent information on the status of
taxation of e-commerce sales by the federal government as
well as by your state and city.

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