Evaluating the Costs and Benefits of Taxing Internet Commerce
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Jonathan L. Zittrain
Harvard Law School and Harvard Kennedy School of Government; Harvard School of Engineering and Applied Sciences; Berkman Center for Internet & Society
National Tax Journal, Fall 1999
Current tax law--and the current technical architecture of the Internet--make it difficult to enforce sales taxes on most Internet commerce. This has generated considerable policy debate. In this paper, we analyze the costs and benefits of enforcing such taxes including revenue losses, competition with retail, externalities, distribution, and compliance costs. The results suggest that the costs of not enforcing taxes are quite modest and will remain so for several years. At the same time, compliance costs are also likely to be low as Internet infrastructure evolves to make enforcement easier, and states coordinate to harmonize their statutes. There are benefits to nurturing/subsidizing the Internet but they tend to diminish over time. When tax costs and benefits take this form, a moratorium provides a natural compromise.
Note: This is a description of the paper and not the actual abstract.
JEL Classification: H2, K3
Date posted: September 13, 1999