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The times they are a changin'

Currently, the city of Tucson is debating the issue of taxes on Internet commerce. Apparently, Tucson is feeling it in the pocket book as a lot of business is fleeing the physical world for the virtual world. Like so many other cities, it is finding out that it is difficult to deal fairly with Internet commerce.

It is threatening to many cities that we can now do an immense amount of things on the Internet. In fact, if you are interested in reading this column online you can go to http://wc.arizona.edu. Many people find this more convenient than having to stop by one of the paper bins, having to carry the paper around and having black ink rub off on their fingers. If you are not one of these people who reads the paper online, then it may be time that you start doing things online rather than in the old and outdated ways. You don't want to be stuck doing things the modern way when they are now done the postmodern way.

Today, we can shop for nearly anything we want online. We can purchase any alcohol that satisfies our cravings, buy books, clothes, groceries, cars and new kidneys. Hell, we can even by the eggs of (supposedly) beautiful and intelligent women to ensure a good gene pool for our children. Whatever your addiction, you can now satisfy it with electronic purchases.

It seems the marketplace of the new millennium is going to be a highly electronic marketplace. Given this reality, much debate has arisen on how to manage it. Many different groups are questioning whether electronic commerce should be taxed just as any other commerce would be taxed. The question is a difficult one to answer, but ultimately it is appropriate that e-commerce be taxed.

Many cities and states are exclaiming that the greater the increase in e-commerce, the greater the decrease in tax revenues. I am not usually one to run to the side of the government, especially on tax issues, but this time I think our state and local governments are right. E-commerce is growing at rapid rates every year, and it is projected to increase exponentially in the next few years. If we fail to allow state and local governments to take their share of the revenues created by these e-sales, then where does that leave them?

Sales taxes for cities are a major source of revenues. If points-of-sales are fleeing cities for the Internet and cities can't recuperate their share, then their treasuries begin to empty.

We must not fail to forget that our roads, water plants and police officers rely heavily on these types of revenues. I fear that if our cities' monies are becoming more and more scarce, then we will have to pay the price in terms of more potholes in the roads, higher water rates and streets that are a little more unsafe.

But cities also have an obligation to be flexible and fair in this brave new world of electronic marketplaces. City governments need to understand that Internet businesses operate in a realm where consumers have no geographical limitations.

Given this reality, these businesses are competing with every other Internet business in the same market. This translates into very high levels of competition. As any first-semester economics student knows, the greater the competition, the more every single cent in your price is destructive.

If cities are going to be able to apply their sales taxes to Internet businesses within their city limits, then they need to be prudent, given the heightened effects that prices have on the Internet.

Given the nature of our changing times, it is important that we see the value in not denying these types of important revenues to our cities which use them for very important and necessary causes.

However, cities must be willing to compromise by ensuring that their sales tax levels are tailored to realistic Internet standards. The sales tax levels should be low enough that they do not make their cities' Internet companies unable to compete and unable to turn a profit in an extremely price-sensitive marketplace. Cities may even need to have separate sales tax rates, one for physical businesses and another lower rate for Internet businesses if their sales tax rates are higher than average.

All in all, e-commerce should not be treated all that differently from normal sales transactions in the physical world. There is currently a moratorium on this issue in the Congress until 2001, so stay tuned for the outcome.