Beware the Threat of Cyber Taxes

Beware the Threat of Cyber Taxes

More and more Americans are turning to the Internet for their shopping needs, especially during the busiest shopping season of the year. But as online shopping records are repeatedly broken, uncertainty about the taxes on goods and services purchased over the Internet could pose problems for the very consumers supplying that growth.

How important has shopping online become? If the start of the holiday season is any indication, online commerce has been a mainstream and convenient way for consumers to shop and save. Last week, online sales hit $3 billion just for Thanksgiving and Black Friday. On Cyber Monday, online sales hit a record nearing $2 billion. And it's not just this year -- in 2012, Cyber Monday sales were 30 percent higher than in 2011.

Currently, some of those online purchases -- those classified as digital goods or services, such as MP3s, smartphone apps, and streaming movies -- could be subject to multiple taxes from different state or local governments. For example, if someone living in New York decides to purchase a movie online during their layover in Michigan while traveling for Thanksgiving, they could theoretically be subject to taxes by three different jurisdictions -- their home state, the state they are in, and the state where the company selling the movie has a server.

There's another tax that might be on the horizon, too: A tax on Internet access. A federal moratorium on such taxes, meant to help drive the adoption of high-speed Internet, expires in 2014. Allowing taxes on Internet access -- which could exceed 20 percent if made consistent with other telecom tax rates -- could be a significant deterrent to getting more Americans online.

Fortunately, Congress is considering legislation to address these two critical tax issues. A bill to prevent duplicative and pyramid taxation of digital goods has been introduced. And a bill permanently extending the tax moratorium has wide bipartisan support in a time of partisan rancor.

Passing these bills would protect consumers while growing the economy. That would be a much-needed win-win for Congress and a positive thing for consumers who shop online.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.

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