The Wall Street Journal. Classroom Edition Debating Current Issues: Internet Taxation

In 1998, Congress adopted the Internet Tax Freedom Act, which placed a three-year moratorium on taxing many online activities, including retail sales. The moratorium has been renewed and extended.

In this debate from The Wall Street Journal Classroom Edition, Maureen Riehl, vice president and industry-relations counsel for the National Retail Federation, and Grover Norquist, president of Americans for Tax Reform, argue the benefits and drawbacks of taxing e-commerce.

YES Should Internet Commerce Be Taxed?

Internet retailers enjoy an unfair price advantage when they don't have to collect sales tax from out-of-state customers. Not collecting sales tax means their prices can be as much as 10% lower than bricks-and-mortar merchants. In an industry where profit margins can be as small as 1% to 2%, that's a killer.

Retailers should be able to compete under the same tax rules, regardless of whether they sell their merchandise in a store, through the mail, over the telephone, or on the Internet. Tax policy shouldn't be allowed to determine the winners and losers in the retail industry.

Opponents have tried to portray an Internet sales tax as a new tax. Nothing could be further from the truth. Online customers and catalog shoppers who live in states with a sales tax have always owed sales tax. They are legally obligated to report purchases where sales tax wasn't collected and pay “use” tax on their state income-tax forms. Unfortunately, few people pay and enforcement has been lax.

Opponents also claim taxation would discourage new technology investment and employment growth. Not true. This is not a tax on an Internet company, it is a tax on the consumer/customer making the purchase.

When sales tax isn't collected, everyone suffers. Bricks-and-mortar retailers experience unfair competition. But the police departments, fire departments, and local schools that depend on sales-tax revenue for their funding suffer far more.

This isn't an “us vs. them” issue—the National Retail Federation includes both bricks-and-mortar and Internet members. And modern retailers are increasingly multichannel retailers who sell their merchandise through whatever medium the customer demands.

Collecting sales tax won't kill the Internet—a Jupiter Research study found that the convenience of online shopping is far more important to consumers than pricing. Instead, it will put Internet retailing on the same footing with bricks-and-mortar retailing, where everyone can compete fairly and freely.

A worker at an Internet retailer gathers books in a warehouse to meet a customer's order. Should sales over the Internet be taxed like local purchases?

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