May 7, 2001– Newsletter #129

Greetings, Weekend Silicon Warriors,

First off, I’m having some wicked email problems. I
know how much mail has been pouring in, but because of
server concerns cannot seem to get it all or reply to it.
Thanks for understanding.

Did you hear

A planned hacker attack on U.S. government sites from
Chinese sites started Monday morning, April 30th. The
government states that the attacks could continue through
the 7th of May, the two-year anniversary of NATOs
bombing of the Chinese embassy in Belgrade.

NAPSTER just keeps dodging bullets. U.S. District
Judge Marilyn Hall Patel wrote that the music industry
must help NAPSTER stop the downloading of
copyrighted songs. Patel isn’t totally in NAPSTER’s
corner. She states that the site should be shut down if
NAPSTER cannot get a handle on it. However, now the
burden of roping in the users is placed upon both
NAPSTER and the music industry.

In a related story, NAPSTER has apologized to its users
for over-blocking some music files making it difficult for
those using the system legally to download.

Here we go! Universities are beginning to require that
incoming freshmen have laptop computers when they
arrive on campus. Framingham State College in MA,
says all incoming students must have a wireless equipped
machine starting next year. If the student cannot afford a
laptop, one will be sold to the student as part of a low-
interest education loan. Framingham joins around 40
other colleges and universities who are trying out the new
computer-based class of 2005. I like the idea.

Now onto today’s topic

October is coming. As sure as the sun will rise tomorrow
morning October is coming. September will come and go
and there it will be. October.

If you do any kind of business on the Web, be it buying
or selling, October should be a month you start
concerning yourself with. That’s when the three-year
Internet tax moratorium comes to an end.

I don’t know that you should make much of a point of
worrying that it will go away. The word is that the U.S.
government will extend the moratorium through 2006.
Reports suggest that the Senate has come up with a deal
that will keep the moratorium in place yet grant greater
authority to states to collect taxes.

OK, I hear your eyes rolling out there. Mine rolled too.
The one saving grace that I keep reading is that states will
only be allowed this extra power if they simplify their
own tax structures.

OKdefine simplify.

I run an e-business. I know what goofy, goofy tax
structures there can be moving from state to state.
Making a blanket statement that states must simplify is
not enough. They must first all come together and then
simplify. They must also decide if sales tax will be the
end of it all. We cannot have one state asking for sales
tax, then another asking for franchise fees and another
asking for use tax, and yet another asking for something
else.

I believe I have an answer to the concern. I know it’s
going to upset some of you because anytime I mention
putting the federal government in charge of anything, I
get nasty emails, but I’m afraid we’re going to have to do
it.

No I don’t mean put the federal government in charge
of tax collection I mean put the federal government in
charge of setting Internet tax law.

The process cannot be solved at the state level. There
will never be agreement between the states. It’s too much
of a committee format and as anyone who’s worked on a
committee knows, after everyone has put in their two
cents, nothing is really cut and dry. Every statement has
been fudged and made less strong because of
compromise. I dare say that the compromise rarely leans
to the good.

There’s an old joke that goes, God formed a committee
to make a horse and they gave Him a camel.

So let’s put it to an authority higher than the states.
Allow me to even suggest the method of tax. The Senate
said they wanted it simple. OK, here’s simple.

1. First each state must decide if they want to collect
state taxes or not. If they choose no, then they cannot
collect Internet taxes on sales made within their state.

2. Each state that will collect tax will submit their tax
rate to the federal government. The tax rate must be the
current state tax rate at least one year before submission.
This will hopefully thwart a quick increase before the
deadline.

3. The tax rates will be averaged and a half a percent will
be added to compensate for states with higher tax rates
being lowered.

4. State taxes will be collected at the point of sale. They will reflect a use tax format. When a person makes a
purchase, he or she will have that state tax added to the
price and will pay it right then and there. Since the tax is
the same for all states, that’s not too rough to program
into the shopping carts.

5. Taxes will be paid quarterly. Monies will come
directly from the e-commerce company to the state
government. That means that at the end of the quarter,
the commerce company will look at its records and
determine how much tax was collected from buyers
making purchases in Louisiana. That amount of tax,
minus two percent that will be kept by the business for
expenses, will be sent to the Louisiana state government.

As a further incentive, the two percent kept by the e-
business cannot be taxed. It is payment for a business
expense. Allow businesses to invest it tax free, or simply
put it in their pockets if they wish.

It is now up to the state itself to figure out how it will
distribute the funds it receives. That will be enough of a
debacle right there.

There will be no differing rates from state to state. There
will be no deductions for certain size businesses.
Nothing will allow the e-business to take more than the
two percent that it is allowed.

The tax form the e-business fills out will be very simple.
How much tax did you collect from buyers in Maine?
Send Maine 98% of it.

I’m afraid it has to be that simple. Once the government
committees begin adding conditions then the whole thing
becomes messed up. Someone is going to ask about non-
profit groups, like a church. Should they pay the tax?
Yes. I’m sorry but yes. The system cannot allow any
groups special treatment or it will collapse under the
weight of all the new special treatments representatives
will get for their people.

If it gets set up so that there is a check box for non-profit
groups, then there will be a group of people, who don’t
merit non-profit status, actually checking that box taking
the risk that the purchase is so small that the government
won’t come after them. It will create a new level of
government we simply cannot have.

Yes, you’re right. It puts the burden on the e-business.
I’m sorry for that, but someone has to do it. By putting
the responsibility upon the e-business, I am more inclined
to believe it will get done. It will just simply be
something the accountant, or the owner, will have to do.
Don’t tell me it’s too big of a pain. An e-business is
computerized from the get go. It’ll most likely be the
easiest part of the tax accountant’s quarterly reports.
Program it right into the shopping cart. Program it into
accounting software.

Yes, you’re right. I can see the people right now getting
around the system by moving to another state or having
everything sent to a friend in whatever state doesn’t
choose to collect state tax. Yes. That will happen. I
don’t think it will be rampant. I also think what little
does happen will become such a pain in the gluteus that
the process will slow way down after the first year.

Furthermore, if someone is doing that and gets caught, it
will be federal, rather than state, tax evasion.

My guess is that if this were to happen, the tax rate would
be somewhere around five or six percent. I pay a lot
more than that right now here in Louisiana. Mine is a
state that depends on sales tax. We need that Internet
sales tax.

So think about it. If buying over the Internet were an
equal thing all across the country, would you be more
willing to pay? If you knew that the money you were
paying was coming back to your state, would you be
more willing to pay? If you knew that there was no
government official messing with the numbers or getting
a cut of the funds, would you be more willing to pay it?

If you know someone who might have a say in this fight,
run this idea past him or her. I can be ready to speak on
Capitol Hill in about 20 minutes. I’d want to freshen up
first.

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

That’s that. Thanks for reading.

Joe Burns, Ph.D.

And remember: In medieval France, King Philip
Augustus decreed that shoes must have a point on the
front. Furthermore, the points must be between six and
12 inches past the toe. Furthermore, furthermore, the
point’s length would determine the owner’s stature within
society, the longer the point the higher the rank. Oh, why
can’t we have that today? Can you see President Bush
walking out on stage with two feet of shoe on each foot?
Wow.