October 15, 2001-- Newsletter #152

By Joe Burns

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October 15, 2001--Newsletter #152

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Greetings, Weekend Silicon Warriors,

Did you hear...

For my next magic trick, my assistant Flooz will make 12.9 million dollars disappear. Flooz.com has filed for Chapter 7 bankruptcy and 327,000 individuals and over 300 companies that held funds with the company are out of luck. The money will be used to pay off creditors and once that's done, there won't be any left for those who originally held the money.

Patches are supposed to fix problems, right? Not this one. Microsoft has pulled a patch that was originally meant to fix a security problem with Windows NT 4.0 Terminal Server Edition and Windows 2000 Server, Windows 2000 Advanced Server and Windows 2000 Datacenter Server. It seems that installing the patch threw all kind of errors. No word yet on when a patch will be created to plug the original security hole or if any real harm was done by attempting to install the flawed patch.

Cipro is an antibiotic that must be prescribed by a physician. My wife, a registered Respiratory Therapist with trauma unit experience, refers to the drug as a "loaded gun." In other words, it is very, very powerful. I'm telling you that because a few nasty people are offering the ability to buy the drug online without a prescription. Here the problem is two-fold. If you do buy and the product isn't Cipro, you're not protected. If you buy and the product is actually Cipro, you're in danger of hurting yourself with such a powerful drug. If you want the drug, see your doctor. Do not get it over the Web.

Ebay continues to be the best buy on the Internet front. The company's earnings have once again outpaced analyst's prediction. They're making money, that's for sure. I just bought a set of binoculars last night. Really. I did. They're 7X50 with the original leather case.

Now on to today's topic...

The playing field has been leveled. Commerce is commerce, is commerce. The U.S. government has allowed the moratorium on Internet taxation to lapse. There is no longer any protection from new taxes being levied against those who do business on the Web.

Is this good, as many are saying, or is this bad, as many are saying?

OK, let's attempt to look at this logically from the consumer's point of view. Before Monday, October 22, 2001, what would have been the reasoning to buy online over just going to a store? I would suggest three elements came into play:

1. Convenience. One didn't have to leave one's house. However, I don't think this is quite the strongest reasoning because if I needed something right away, I wouldn't have gone online. I would have simply gone to the store and purchased it. Thus, I believe that online sales were not necessity items, but rather items that were for pleasure or want rather than need. The argument that what I wanted to buy wasn't available in my area comes into play, but I still believe that makes what you're buying more of a luxury item.

2. Price. Online shopping allowed for great pricing structures in that I could check my options and keep each seller fair. I often found prices well below those prices found in a local store. However, when I figured in shipping and handling costs, I really didn't save more than a few of percent. Yes, there were those occasional big drops in price, but those were not the norm. Most people I ask will tell me that they buy one or two items online because of price. Books were the main product. However, the price for most everything else was fairly competitive. Plus, I had to wait for my item to arrive.

3. Tax break. This also goes right along with number two, but should be broken out on its own. The sales tax here in Louisiana is big. It's nine percent in many places. That's high, yes, but it also means our other taxes are lower. I actually prefer this structure when opposed it to the one I used to live under in Pennsylvania. For me, the tax break made for a great reduction in price. I didn't mind waiting for my item to arrive.

Now, let's take the third one out of the picture. As of this morning (I am writing this on Monday morning October 22, 2001), it is possible for tax to start being imposed on online sales. Over 7500 tax jurisdictions will soon start laying out plans to tax those online sales in order to get a "fair" share of an estimated 440 billion in sales taxes between now and the year 2011.

Gosh.

If we take number three out of the picture, we are left with only two reasons for buying online, convenience of non-necessary items and price. If a tax is imposed then price probably cannot continue as a viable reason for buying online. Unless the item a person wishes to buy is greatly reduced online, it'll be worth the hassle to get it by driving to the mall.

The definition of "greatly reduced" is the problem here. A fellow professor said that if sales taxes were imposed, he would stop buying online even if the savings was still around five percent. That was his bottom line. What's yours?

Now comes the conundrum I see rolling down the pike. Tax is imposed on the Web and, if buying stays at the current level, the revenue will be tremendous. But guess what? Buying will most likely not stay at the current level. I believe it is a delicate balance right now between buying online and buying from a store. I don't buy necessities online. I buy the fun things. If you place a tax on me, prices equal out. Why should I wait five days, and pay shipping, to get the fun thing delivered when I can have it in an hour for around the same price?

The tax projections are going to falter because people will no longer want their purchase in five days. They'll want it right now. They'll buy it locally. That's worse.

..or it is?

The U.S. economy is either in, or is darn near, a recession. The war on terrorism is not having a positive effect. Those in the know continue to tell us again and again that we must spend money in order to strengthen the economy. The Federal Reserve is cutting interest rates in an effort to get businesses and individuals to take out loans.

In these times, from the consumer viewpoint at least, it seems a very ignorant move to add taxes that may thwart commerce rather than assisting it. Putting taxes upon Internet commerce at this point may do far more to harm the economy then help it.

...or will it?

I still buy online. I buy a good many things online. What I buy online is fun to me. I can't remember the last time I bought coffee or gifts in a store. My wife buys books and cosmetics online. If we have to pay almost 10% more for all of what we buy, I doubt we'll buy it.

...or we'll buy it locally.

Tax the Web right now and you either stagnate the money in people's pockets or you force them forget the Web and to buy locally. Taxation at this point could just about kill Internet commerce.

Wait a minute. It could kill Internet commerce?

Hold on a second. If consumers forget the Web and buy locally, that would mean the sales tax would be paid.

Hmmm...that wouldn't have been the reason for the dropping of the moratorium would it?

Let's look at this logically. Except now let's look at it from the tax collector's point of view.

If taxes are applied and Internet commerce continues, money is raised.

If taxes are applied and Internet commerce dies, people buy locally, and money is raised.

Maybe I'm looking at this from the wrong logical side. In terms of local sales tax, no matter what happens, money is raised.

Oh dear...

>>>>>>>>>>>>>>>>

That's that. I am in full conspiracy theory mode today.

Joe Burns, Ph.D.

And Remember: I had heard once that the word "Taxi" is the only word that is exactly the same in every language around the world. I highly doubt that's true, but where did the word come from? Taxi came from the tax, or fare, one paid to ride. The machine inside the car that counted off the tax was referred to as a "taximeter." Knock "meter" off of the end and you get the current name.

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