Editorial: No reason for Internet exemption

Friday, Feb. 27, 2004 | 5:40 a.m.

WEEKEND EDITION

Feb. 28 - 29, 2004

Gov. Kenny Guinn and many other governors have identified a problem, that, if not addressed, could cost state and local governments throughout the country billions in the coming years. A better way to say that, actually, is that residents could be in danger of losing billions of dollars worth of state and local services. The problem is the growing loss of sales and business taxes. The losses are mounting as more and more transactions are taking place over the largely unregulated -- and untaxed -- Internet.

In today's world, for example, traditional phone service generates sales taxes and business taxes that go toward education, public safety, health care and other vital public services. As more people turn to the Internet for phone service, those taxes will diminish. The problem extends to movies and music that can be easily downloaded instead of bought or rented from a store, and to every retail item or service imaginable.

In a speech last week in Las Vegas to the Nevada Taxpayers Association, Guinn said the emerging technologies will be "devastating throughout America" if governments do not figure out a way to maintain the revenue now generated by sales and business taxes imposed on traditional methods of buying and selling. Guinn stopped short of calling for Internet sales and services to be taxed. He instead simply pointed out the problem and said he planned to discuss it with local government officials throughout the state.

Given the growth of the Internet in just the past decade, however, we cannot see any other alternative than to collect taxes on many of the Internet's activities. Any good or service that is taxed now, when over-the-counter sales are predominant, should continue to be taxed. In our view nothing will have changed except the method of buying and selling. That change is just in its beginning stages now. Very likely, one day soon, a much more significant percentage of sales and services will be taking place online.

The National Governors Association, which met last week in Washington, recognized the problem. Legislation being considered by Congress would permanently ban Internet taxes. The governors countered that, calling for a two-year moratorium on Internet taxes so they would have time to make their case about the potential for devastating losses in their states. We believe Congress should not even consider a ban on Internet taxes. Instead it should resolve to figure out a way to put Internet businesses on equal footing with taxpaying businesses.