Internet Sales Tax

Internet sales tax is topic that has been under heavy debate for over a decade.   The tax proposal will have an impact on not only the consumer, but the provider, supply chain, e-commerce, and the economy as a whole.   The National Bureau of Economic Research found that, “an imposition of sales taxes could reduce online spending by as much as thirty-percent.  This thirty-percent reduction could cost companies as much as 54 billion dollars in lost sales.”  ("Online Retailing to Reach $ 36 Billion in 1999”)  According the findings of the National Bureau of Economic Research, implementing internet sales tax could have a damaging effect on the consumer, provider, supply chain, e-commerce, and the economy. 

Deloitte and Forrester Research Company predicted that in 2002 the internet sales would have reached 180 billion dollars.  If you take the 126 billion that remains after the project loss due to internet sales tax, the government would generate an estimated 6.3 billion dollars in new revenue. (Gray 1999) This would primarily benefit the government, not the consumers or e-commerce.  This is validated with the projected loss of sales, due to internet sales tax, being in excess of 47.7 billion dollars.  That is a devastating blow to the economy, supply chains, providers, and e-commerce in general.  

Making purchases on the internet has its pros and cons for any consumer.  There is no instant gratification that a consumer can get by walking into a store and taking their purchase with them immediately.  They can’t touch it, feel it, or try it on.  Also, the cost of shipping has to be considered.  However, one factor that has been very dominate in the growth of e-commerce is that purchases made on the internet are void of sales tax.  That is appealing to most consumers and plays a large role in the continued growth of internet sales.  Obviously there are many other factors that contribute to e-commerce, but internet sales tax is a large part.  

The providers and supply chains would be negatively affected as will.  Assuming that the studies done by the National Bureau of Economic Research are accurate, each merchant will have a 30 percent loss of sales as a result of the internet sales tax.  That large of a loss could be detrimental enough to cause a business to close its doors.  The supply chains would no longer need to provide merchandise or services to this location.   Dependent on the amount of locations they supply to, this could also have a devastating affect on the provider and supply chains as well. 

Finally, one would have to consider the economy.  Most can attest to the effects of a downward spiraling economy.  There is a drastic loss of business, unemployment increasing, and individuals not having money to reinvest back into the economy.  Businesses have to downsize and jobs become harder and harder to find.  The revenue that could be gained by the government from internet sales tax is too large to not consider, however, the money that they gain would not be nearly as much as they would lose.  A prospering economy provides much more money than the 6.3 billion they could potentially gain.  Imposing internet sales tax would have a negative impact on the consumer, provider, supply chain, e-commerce, and the economy over all.  This topic has been up for debate since 1998, and it has continually been denied for a reason.  The negative effects are far greater than the potential positive, and moving forward with an internet sales tax will have a detrimental outcome for everyone involved.