1/13/00
E-COMMERCE SPELLS DEATH FOR SALES TAX, SAY AU ECONOMISTS
AUBURN -- The explosive growth of shopping on the Internet will eventually spell doom for sales taxes around the United States as they are currently configured, according to two Auburn University economists.
And professor David Laband and associate professor Richard Ault disagree with the view that the loss of sales tax revenue to e-commerce will be limited due to shipping and handling expenses, the difficulty of shipping some items and lack of access to the Internet.
"It is only a matter of time before items such as groceries, which are both perishable and expensive to ship relative to their value, will be offered over the Internet," says Laband
"Vendors of heavily-taxed items like gasoline will have an especially powerful incentive to structure sales through the Internet. Oil companies can sell coupons tax-free over the Internet that purchasers can redeem at any affiliated station. The implied tax savings to customers will be enormous."
But Laband predicts that taxing e-commerce will eventually dry up sales tax revenues for state and local governments.
"Firms conducting e-commerce from states with relatively low state sales tax rates on Internet commerce will have a competitive advantage over those conducting e- commerce from states with relatively high state sales tax rates," he said. "Competition will induce profit-maximizing firms to migrate to low-tax states."
Ault says e-commerce companies will move their headquarters to lower tax states, prompting "continuously falling sales tax rates across states."
And Ault says it is doubtful that states can maintain the sales tax at all in the future.
"States might attempt to enter into an agreement under which they would all agree to a common sales tax rate," he said. "However, as with any cartel, each and every state would have an incentive to cheat by lowering their sales tax rate in an effort to attract commerce with the associated tax revenues.
In addition, Laband says U.S. consumers could simply make purchases in foreign countries that do not have sales taxes.
"Competition between countries for tax revenues will result in lower tax rates on e-commerce everywhere," he says. "Duty-free shopping no longer will require you to travel to Barbados. It will be as easy as clicking a mouse in your home anywhere in the United States."
Laband says states should not waste their time arguing the merits of taxing e-commerce because "the sales tax is dead either way."
"The development of Internet shopping provides consumers with extraordinary shopping mobility. This gives them an ability to avoid the tax man to a degree that heretofore was simply unimaginable, even to the tax authorities," he said. "This mobility will, in due course, render sales taxes incapable of being a reliable source of substantial tax revenues.
jan00:AU-ecommerce