Internet Taxation

At times of great discussions over whether the Internet sales should be taxed or not, the link below offers some arguments against online taxes.

i) the Internet is not tax-free shopping, online users already pay a myriad of telecommunication taxes.

ii) Internet tax sales only levels the playing field if a national sales tax is imposed.

iii) consumers are not willing to pay for Internet sales tax. If this happens, studies show that online users will shop elsewhere.

iv) tax is not avoided either buying online or at bricks-and-mortar stores since online retailers are required to have physical presence in the buyer's state in order to collect sales tax.

v) there is no evidence that cities and states have lost revenue by technology driven economic activity.

vi) cities, states, and countries do not desesperately need to tax online sales since they can have other forms of taxation: personal and corporte incomes.

vii) the Internet is not killing "Main Street" businesses because many customers get information online but buy offline.

Other arguments against online sales tax: i) Amazon threatens to pull out warehouses from states that charge taxes and cease business with affiliates ii) this is protected by the "Commerce Clause" (no state can impose a barrier on commerce between states) iii) will harm many small Internet start-up companies iv) online retailers prefer that one set of national rules be adopted rather than state-by-state laws.

www.nointernettax.org/default.asp?Page=Myths

The Considerations for Uniform Taxation

The paper "The Uneasy Case for Uniform Taxation" examines uniform taxation in the context of tax reform. It considers that an optimal tax system should impose rules that vary by type of income and taxpayer.

According to fairness, everyone pays the same amount of taxes and tax burden allocation should be based on income. According to efficiency, taxation should minimize economic distortions and correct market inefficiencies.

The merits of selective taxation are i) new economic and political theories ii) improve the ability of the taxing authorities to collect and enforce taxes iii) address the detrimental effects of the increasing international flows of capital which severely undermine the validity of a uniform tax system.

"Merely making the tax system more uniform may not improve fairness and efficiency".

It is important to be aware that all taxes cause economic distortion and all have equity consequences. We should not substitute slogans for an analysis of the costs and benefits of specific tax proposals. Although good reasons often support uniform taxation, circumstances likely exist where it is appropriate to differentiate among types of income and types of taxpayers.

According to the "The Case Against Worldwide Taxation", uniform taxation proposed by Organization for Economic Cooperation and Development (OECD) harms competition since poor countries could no longer use tax exemptions to attract business. It will cost them more with subsidies to convince retailers to invest and will make greater the disadvantage for marginal areas and endangers sovereignty by introducing international bureaucracy.

Uniform tax is "not uniform" in its effects. The case study of "Bradley-Burns Uniform" states these effects.

According to "no Internet Tax" uniform taxation reduces competition between tax rates among local authorities and limits the control that tax authorities have over establishing and defining their own tax rates.

https://litigation-essentials.lexisnexis.com/webcd/app?action=DocumentDisplay&crawlid=1&doctype=cite&docid=16+Va.+Tax+Rev.+39&srctype=smi&srcid=3B15&key=b9bfb06a180090016564e4b432329dc4

http://www.limitedgovernment.org/publications/pubs/briefs/pdfs/brf7-38.PDF

http://www.nointernettax.org/default.asp?Page=Myths

The risks of lifting tax exemptions

"GET Exemption in Peril" deals with the challenges imposed by tax exemption for increasing state revenues.

Tax exemptions are granted to offset the negative impact of the General Excise Tax (GET) on Business-to-Business transactions and to attract economic activity.

Lawmakers agree on that i) tax exemptions should be periodically reviewed to determine whether they still make sense as a tax policy ii) set a lower 0.5 percent rate on wholesale transactions where businesses buy products from other businesses to sell as retail and iii) awarded to minimize pyramid effect.

The problem is that revenue estimates - with tax exemptions - are considerably lower than previous predictions because tax analysts suspect that lifting the exemption could change behavior among awardees. Aircrafts said that lifting tax exemption will force them to i) increase the cost of new constructions and renovations ii) scale back expansion plan iii) lay off workers and iv) increase fees.

http://www.staradvertiser.com/news/20110417_GET_exemptions_in_peril.html

Taxation in Hawaii

In “Hawaii General Excise Tax (GET): Should the Base be Changed?”, William Fox analyses whether Hawaii GET should be altered by granting additional exemptions and by eliminating some existing exemptions.

This matter should be carefully considered because GET generates the largest amount of revenue at a low tax rate in Hawaii. In addition, Hawaii has the broadest sales tax base in the US.

Any appropriate exemption should be evaluated in the light of economic, revenue, and distributional effects. Business to business transactions as well as business to household transactions can both benefit from tax exemptions. While assessing exemptions it is also crucial to understand the difference between business and individual behavior.

Regardless of exemptions, every good tax system is comprised of low compliance and administrative costs. Compliance refers to the costs on the private sector to fill out tax returns, comply with tax structures, and remit tax payments. Administrative costs are about the government costs on collecting taxes, hiring staff, designing tax systems, preparation of documents, and identification of tax payers.

Independently of tax exemptions, another important aspect to be considered are the revenue principles of sufficiency, adequacy, and stability. Sufficiency means the generation of required revenues during budget periods. Adequacy is about whether tax systems provide enough revenues to continue providing services over the long term. And stability refers to taxpayer’s cyclical performance.

Principles of Tax Policy in Hawaii

"Report of the 2005-2007 Tax Review Commission" unfolds the principles of a sound tax policy in Hawaii.

The principles are:

i) fairness: people in similar economic circumstances are taxed equally and higher incomes should face a higher tax rate;
ii) efficiency: broaden tax scope so that tax rate can be kept low & uniformly apply to its base to avoid favoring one type of consumption over another;
iii) simplicity: eliminate special deductions, exemptions, and exclusions to reduce costs of tax compliance by taxpayers and tax administration by policymakers;
iv) transparency/accountability: allow taxpayers see which taxes they are paying, which taxes they wish to pay, and how much;
v) adequacy/stability: raise appropriate amount of revenue for the government service demanded by its citizens and provide the right amount of revenue as the economy grows;
vi) competitiveness: give tax incentives only to attract businesses that would not flourish in the natural economic environment.

Optimal Taxation

In "Optimal Taxation in Theory and Practice" Mankiw, WeinZierl, and Yagan deals with the optimal design of tax systems.

The eight lessons from tax theory for optimal taxation are:

1. Optimal marginal tax rate schedules (or tax list applied to income level) depend on the distribution of ability (talent: ability to earn);
2. Optimal marginal tax schedule could decline at high incomes;
3. A flat tax, with a universal lump-sum (single payment), could be close to optimal;
4. The optimal extent of redistribution (take money from someone and give to someone else) rises with wage inequality;
5. Taxes should depend on personal characteristics as well as income;
6. Only final good ought to be taxed, and typically they ought to be taxed uniformly;
7. Capital income ought to be untaxed, at least in expectation;
8. In stochastic (conjectural or random) dynamic economies, optimal tax policy requires increased sophistication.