Tax news - proposed taxation of Internet access

Entrepreneur, Oct, 1996 by Robert McGarvey

Are taxes coming to a modem near authorities in Tacoma, Washington, get their way, Internet access will carry a 6 percent tax burden - and that tax will be collected on fees imposed by both online services (such as Compu-Serve) and Internet access providers (IAPs). Worse, industry observers fear the tax will spread far beyond Tacoma's limits - possibly to your town.

"The real push for taxing the Internet is at the state and local levels," says Jeff Richards, a Washington, DC, marketing executive and a board member of industry trade group Interactive Services Association.

Fear of a fast spread of online taxes has triggered an uproar in the online industry, and forces are gathering to halt the Tacoma tax. Tacoma, meantime, has scheduled public hearings to air the issue.

But Vince Callaway, co-owner of Washington Internet Services, a Tacoma-based LAP, already knows where he stands. "This tax would be an accounting nightmare," Callaway says. "Internet providers traditionally have had a tough time billing because it is so complicated. This alone could put them out of business."

And while governments see "Internet access as a high-margin business, the reality is that it is a highly competitive business where a spread of a penny can make a big difference," adds Richards. "Any taxes would have to be passed on to customers or eaten by the companies."

Worse, says Richards, is that "at the same time we are talking about leveling the playing field for entrepreneurs and closing the gap between the information-rich and-poor, we are also talking about taxes - but taxes could have a big effect on these issues. Taxes could be particularly harsh on small businesses and also on potential users of limited means."

Stay tuned for more updates. Nobody knows what the outcome will be, but one thing's for sure, says Richards: "This drama is just beginning."

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