Cutter Advises States Against Online Taxes

In a recent Council Opinion from Cutter Consortium's Business Technology and Trends Impacts Advisory Service, the Council urges any state considering imposing a sales tax on goods and services purchased online to think again. Companies will likely move their revenue operations overseas or to the states with the most favorable tax policies and tax rates in order to gain or retain a competitive advantage. The result will be simple: not only will the state fail to receive any additional sales taxes, but they will also lose the revenues that these companies were generating.

"Unfettered (untaxed) e-commerce is the goose that laid the golden egg for the states," says Cutter Technology Council Fellow Tom DeMarco. "As appealing as it may be to "recapture" state sales taxes on e-commerce, the states are all too aware of how they have profited from the absence of such taxes."

DeMarco offers these two pieces of advice to companies: Take steps to avoid taxation of pure data transactions, and lobby aggressively against attempts to burden e-commerce with regulation and taxation.

"Of course, there will always be legal recourse to plug revenue holes," concludes DeMarco. "But the first state to act aggressively to capture lost revenue will put its own e-commerce providers at a disadvantage and risk losing them. The loss is likely to outweigh the potential revenue gain. Even a state with little presence in the world of e-commerce will have to think twice about scaring away those e-providers who might like to settle there."

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