Subj: Privacy Part 2: Perspectives of Americans For Tax Reform 
From: Ron Nehring, 858 794 2338 Americans For Tax Reform (ATR) 
To: Internet Caucus Advisory Committee Section: Privacy

Privacy, the Internet, and Taxes

by Ron Nehring,

Director of National Campaigns for Americans for Tax Reform Contact: 
Rnehring@atr-dc.org, or 858-794-2338 679 words

The Advisory Commission on Electronic Commerce rejected calls for a 
national sales tax collection system for the Internet. One of the reasons it did 
so had  nothing to do with taxes or economic growth, but rather protecting 
Americans’ privacy in  cyberspace.

Polls and recent media attention show that Americans are increasingly 
 concerned with protecting their privacy when they go online. People are 
naturally  uncomfortable with the idea of somebody else following them around 
and keeping track of  which websites they visit, what they buy, how much the 
pay, where they live, and  other personal information.

Yet, if some government officials have their way, that is precisely what 
could happen. But it wouldn’t be some nameless, faceless company keeping track 
of  all of your purchases. Instead, it would be the government.

For sixty years, California has tried to force catalog companies, telemarketers, 
 and other out of state “remote sellers” to collect California sales taxes on 
their sales  to Californians. Trouble is, these efforts have consistently run 
into legal trouble,  and the U.S. Supreme Court has consistently rejected 
attempts by states to impose  sales tax collection duties on vendors with no 
substantial presence in their state. The  Court held that to force a company to 
comply with the sales tax collection, remittance,  reporting and auditing 
requirements of 6,600 taxing jurisdictions would impose an  unacceptable 
burden on interstate commerce.

With the advent of the Internet government officials are at it again, trying to 
 come up with a way to force out-of-state companies to collect sales taxes. The 
chief  proposal to do so should frighten any American concerned about protecting 
their privacy  from snooping cyber-tax collectors.

Last November, the National Governors Association, which represents all 
50 governors, proposed a system where states would hire “trusted third parties” 
to  collect sales taxes for them. According to the NGA, every remote seller 
(such as J.  Crew, Amazon.com, and other) would ultimately be required to 
transmit a customer’s  name, credit card information, and a list of their 
purchases to the “trusted third  party,” which would then calculate the sales 
tax, and bill a customer’s credit card for the  appropriate tax.

The plan sounds simple enough, until one considers that any sales tax 
system would quickly lose integrity unless transactions can be audited at random 
and  verified.

To do that, records would need to be kept of what consumers bought, from  where 
they bought them, what they paid, and the corresponding credit card information.

Once such a database is built, the opportunity for abuse is enormous.

State revenue agencies could use the information to build profiles of 
individual taxpayers’ spending patterns to determine if an income tax audit is 
warranted.  At the federal level, whistleblowers at the IRS have already 
admitted targeting less  affluent taxpayers for audits, knowing that wealthy 
taxpayers are far more likely to fight  an audit while the poor and middle class 
tend to give in rather than face an invasive  examination of their lives. Giving 
the tax man a record of all your purchases, in advance,  gives the government an 
enormous advantage in any tax collection dispute.

Not even California Senate President Pro Tempore John Burton could ignore 
 the privacy ramifications of an Internet tax collection scheme. In testimony 
before  Burton’s Revenue and Tax Committee on his bill to make all online sales 
tax free in  California, Senator Ray Haynes raised the issue of the database 
that would be required if  a Net tax system were put in place. Burton, otherwise 
hostile to a tax-free Internet, took  notice when Haynes explained how a 
database of consumer purchases would be  required to ensure the integrity of 
such a system.

Internet users and businesses should be free to exchange information online,  as 
long as such arrangements are voluntary. Allowing the government to track 
 consumers’ actions and behavior in cyberspace, in the name of collecting new 
taxes, is an  idea only George Orwell could love. Americans should reject such a 
system as an  unacceptable infringement on the liberties and privacy to which we 
are all entitled.