Session Week 13
Fax: 319-355-9954

The Iowa Department of Revenue and Finance is currently considering administrative rules that would, in the opinion of many, create a bridge through which the state of Iowa could tax many business-to-business transactions conducted via the Internet. The proposed rules raise any number of disturbing questions concerning taxation of the Internet and the consequences that tax policy might have on this critical engine of current and future economic growth.
The fact that a state department of unelected bureaucrats is attempting to make this monumental policy choice is disturbing in and of itself.
What message does Iowa wish to send the e-commerce community? Adoption of the Department’s proposed rules would be like putting stop signs on our state’s electronic borders and telling the world Iowa is an unfriendly place in which to do business. A better message would be to make Iowa one of the first states in the nation to prohibit taxes on most Internet transactions and hold ourselves out as one of the best places in which to locate the growing number of e-commerce enterprises.
For all the hype surrounding e-commerce and Internet activity, for all the astounding financial statistics that invariable follow discussions of the Internet economy, we need to remember that e-commerce is still in its infancy.
As policy makers grapple with the social and economic consequences of the Internet, they have no idea what the Internet business model will look like in ten years. At this point we do not know if there will be significant differences in the future between brick-and-mortar, click-and-mortar, and pure.com firms. In this rapidly evolving environment, public officials should be wary of any attempts to apply archaic tax laws to a wholly new type of commerce.
The second common argument used by pro-tax forces centers on the loss of revenue due to e-commerce. But studies by Ernst & Young show that much of the business conducted in cyberspace is not taxable. Business-to-business transactions account for over two-thirds of e-commerce, none of which is subject to sales tax

(unless the Department’s proposed rules are adopted). States are losing only a fraction of revenue they might otherwise expect, with one estimate as low as a quarter of one percent.
Why would Iowa want to take the national lead in taxation of the Internet? Why would we want to make our state an unfriendly, if not outright hostile, environment in which to participate in the fastest growing part of our economy? We don’t!
Iowa can be a national leader in this economy if we take action now to stop most taxation of these transactions. The consequences of such a policy on traditional main street business are unproven. The damage such a policy would have on our tax base is virtually non-existent. But the potential for growing e-commerce businesses and creating high quality jobs in Iowa is very real.
On Wednesday the House Ways & Means Committee passed HF 2562, a bill that would stop the Department and make sure that Iowa remains friendly to e-commerce and e-business.

Ways & Means Update

HSB 760 a bill establishing a community development program to aid certain neighborhoods and communities and providing tax credits for income tax, franchise tax, and premiums tax for businesses contributing to community development projects.

You can track these bills on the Internet at: www.legis.state.ia.us

   Week in Review Archives

04-07-00
03-31-00
03-24-00
03-17-00
03-10-00
03-03-00
02-25-00