August 23, 1999 -- Newsletter #42

By Joe Burns

August 23, 1999 -- Newsletter #42
Please visit http://www.htmlgoodies.com

Greetings, Weekend Silicon Warriors...

I am writing to you from the luxury of my new house in Louisiana. This is a very pretty state. The people have been just wonderful, too. I ate a bowl of gumbo tonight that should be part of the national record. Fruits and vegetables are amazingly plentiful and you can buy a pound of gulf shrimp from a roadside vendor for $2.50. I just can't yet bring myself to eat crawfish and I'm looking forward to my first hurricane.

Did you hear...

>Advanced Micro Devices has released the fastest chip around... a 650MHz monster. "Athlon" as they call it (formerly known as the K7) will first be carried by IBM and Compaq computers at a cost of around $1300. Zoom!

>Department of Motor Vehicles on-line? Move to Arizona. They are allowing license renewal and some transfers over the Web. People are doing about 1000 a day. There is even talk of setting up connections between states (Louisiana was mentioned) so that moving to a new state would also mean a transfer of driver's license. Cool.

>Kudos to Aleksandr Mysko. He is the person in charge of safeguarding the Ignalina nuclear power plant, a Soviet-built, Chernobyl-style reactor that provides 80 percent of Lithuania's electricity against Y2K. Mysko says the plant is in pretty good shape because they didn't buy western-style computers to run it. The biggest concern is not the computers, but that the walls are crumbling and falling down. Oh dear...

Now onto today's topic...

eBay? E*Trade? E-Dead! Egad.

E-what are we going to do?

E-wait for the server to come back up. E-what else can we do?

(Well, I can stop putting "E" in front of everything, for starters.)

I remember a report a while back that noted the position of "Webmaster" as the best job in America. I think the guy who sniffs armpits to test the effectiveness of deodorant came in last again this year.

Do we still think that Webmaster is the best job? I'll bet not. "Lottery Winner" probably climbed back up again. How would you like to have been the Webmaster of eBay the last time they went down? Ten bucks says you would be out of a job. That's what usually happens. Oh sure, the PR department can say it was a database concern, but when was the last time you brought a database into the office to yell at it?

One time eBay went off-line for 21 hours. That one stoppage is estimated to have cost the company $5 million in profits, stock, and revenue. In case you're wondering, that's $238,095 an hour, $3,968 per minute, or $66 a second.

The amount of money an E*Trade stoppage causes goes even further. There, you need to factor in not only the company's losses, but also those of clients and business traders.

These outages, more than anything else, legitimize the Web as a serious place to do business, to buy the items you need. On-line sales and services have topped 1.6 billion and are expected to top a trillion within 5 years. No kidding.

Now I actually get to the meat of my newsletter... taxes.

Yes, yes, I know. I don't want to pay taxes from buying and selling on the Web any more than you do, but hear me out. I'm talking sales tax here. That's the local stuff, the stuff you pay when you roll into Wal-Mart. Right now the Tax Freedom Act is in place to make sure you do not have to pay tax, but that pup has only three years. Then, unless something is done, that local sales tax will pop up in one form or another.

There are now 45 states that collect revenue through sales and use taxes. Imagine five years in the future, when buying on-line is a completely common occurrence. Rather than go to the mall, many people (up to 75% according to some estimates) will decide to shop on-line. Local businesses will not generate revenue, thus they will not pay local taxes, and might go out of business. A loss in local tax revenue means less local business. Your local government won't work with less money. It'll have to come from somewhere.

Right now, the catalogue model of taxation is in place, where companies do not have to act as tax collectors for a state unless the company has a dominant presence in the state and the buyer is also from that state. Many on-line companies get around paying the state taxes because the vast majority of their buyers are not from the state they are doing business in. Also, if you set up the business in a state that doesn't ask for sales tax, that pretty much kills the whole deal.

Revenue losses right now are small enough that no one is really losing their mind, but it still has some people concerned. The new "Advisory Commission on Electronic Commerce" has been created by federal, state, and local officials, thanks to Tax Freedom Act. The group has 18 months to come up with a tax plan for what to do about local sales taxes when the Tax Freedom Act dies and present that plan to Congress.

Wait before you yell "No new taxes!" These are not new taxes. This is revenue that is generated at point of purchase thanks to your local businesses. We're not talking about federal money that goes away and you never see again. This money goes to local services. Your water, ambulance, grounds, teachers, and sewage could also be possible benefactors of local taxes. Can we expect to buy all of our necessities on-line, pay no local taxes, and expect the local services to continue? We can't ask to pay nothing and get the services. See the concern?

There are a few viable options that are being discussed:

1. Stay with the catalogue method we use right now and hope that the growth of the Internet will offset the loss of local taxes by providing jobs and economic growth. Some have dubbed this the "No Net Tax" plan.

2. Install a plan where you would pay a tax depending on either where you live or where the business sits. It would be a variant of the Interstate Commerce tax.

3. Create a uniform tax system where you would pay a flat fee (plus options) on what you buy. It sounds a lot like a "pay- for-use" tax.

Let's say we go with option 2 or 3. The big question becomes who will distribute the tax. The only real method I've heard so far is distribution by the state, then the state would be responsible for distributing the tax to local areas. Cities might not have much trouble with that plan, but rural areas might get a bit upset.

Right now we, the consumers, are protected under the Tax Freedom Act which put a moratorium on taxes for three years (we're in the second year). My concern is whether or not the Commission will come up with a viable system of collecting and redistributing the taxes by their April 2000 deadline. If not, the Tax Freedom Act will die and business will be left to set its own policies. That could spell disaster for some smaller towns if the Web does become the commerce monster it is predicted to become.

I know. I hate new taxes. In fact, I hate taxes period. But I also want my fire and police and sewage services, and I want other civil workers to be able to earn a decent wage for the job they do for me.


And that's that...

Joe Burns, Ph.D.

And Remember: I just bought a kitten. She looks like a calico, but in reality is a tortis. What's the difference? A calico is predominantly white and always female. A tortis carries the same markings as a calico, but is predominantly black and can be male. My new kitty is a female. Her facial markings split her between the eyes and she looks like she's wearing a mask for Mardi Gras. So, we named her Mardi.

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