GOODIES TO GO! ™
August 23, 1999 — Newsletter #42

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.