TAXATION OF ELECTRONIC COMMERCE

Hal R. Varian
Dean, School of Information Systems and Management
University of California at Berkeley



Taxation is the amount of money raised by collecting taxes and an amount levied as a tax on something. They would rather choose to buy online because there are no taxes paid when they tend to buy using the Internet or online buying. The state officials worry about the buying in the internet, they lost the state tax revenue. In 1998, the congress passed a law which entitled Internet Tax Freedom Act. In 1998 state taxes generated about $12 billion dollars, roughly 25% of state and local tax revenue. There are state that has no tax, the state that have no tax are the Alaska, Delaware, New Hampshire, Montana, and Oregon, all of this state is about 3% of the total population of United State. About 60% of the state tax revenue if from the consumers while the 40% of the tax revenue is from the business sector. The economist argue about the taxing of business purchase because the business sector gives the tax to the consumers which is not right, since the consumer is the one who pay for their taxes by making their items more higher price. Suppose that firm A sells a product to firm B for $1 plus a 5 percent sales tax. Firm B then sells the same product to a consumer for $2 plus another 5 percent sales tax. If these taxes are fully passed along to the consumer, he or she ends up paying 15 cents tax on a $2 purchase. The increase in the final tax paid by the consumer due to the taxation of business inputs is known as "pyramiding" or "cascading." This pyramiding of taxes will cause consumers to consume less of the good than they would have otherwise and may cause firms to change their behavior simply to reduce their tax burden. Senator John McCain has introduced the Senate Bill 16111, which talks about the scope of the internet. Since the business or the commerce is global, the internet is one of the most convenient way to buy or sale a product because with the internet you can buy or sale a product anywhere you want. For me the internet is one of the effective way on making a business.

REFERENCE:
http://people.ischool.berkeley.edu/~hal/Papers/etax.html