Blaming Corporations is Not Good Policy

Congress should expand foreign trade zones to include a value-added tax (VAT) incentive.

Congress should include a value-added tax (VAT) incentive for investing in foreign trade zones. At least 143 nations have VATs, which have the advantage of being border adjustable, meaning that exports are not taxed whereas imports are, thus improving U.S. competitive advantage. If Congress created a VAT in foreign trade zones, establishments in the foreign trade zones would be eligible to pay VAT taxes instead of corporate income taxes and these taxes would be waived on all foreign exports.

Create global knowledge investment zones (GKIZs) to attract foreign direct investment.

The federal government should identify a limited number of global knowledge investment zones as a key mechanism for attracting high-value-added foreign direct investment. Firms located in these zones would be eligible to receive a number of benefits, including: 1) The ability to write off (on federal taxes) all capital expenditures in the first year; 2) A collaborative R&D tax credit of 25 percent on all expenditures on research made at the associated universities in the GKIZ. For companies that are not yet profitable, tax benefits could be applied against payroll taxes; 3) Streamlined access to university technology, with university zone participants agreeing to implement leading-edge intellectual property and technology transfer practices, including “standardized” licensing agreements and policies to encourage faculty entrepreneurship, industry engagement, and technology commercialization; 4) Access to better-funded NSF I/UCRCs; and 5) Visa preferences by tapping into the unused portion of existing EB-5 visas.

Congress must take steps to retain and strengthen the domestic production deduction

The Section 199 deduction for domestic production increases the incentive to invest domestically. Eliminating this deduction would raise the effective tax rate on manufacturers and other exporting sectors, thereby at the margin leading to reduced exports, greater imports, fewer jobs in these sectors, and lower overall growth. Rather than eliminate it, Congress should expand it as President Obama has proposed for advanced manufacturing firms.

Congress should reduce uncertainty by making the R&D tax credit permanent.

R&D tax incentives in virtually all nations except the United States are permanent features of the tax code. Since its enactment in 1981, the R&D tax credit has been extended eleven times and expired three times. The uncertainty over the credit’s existence adds risk to the already risky research investments made by companies and reduces its effectiveness. One OECD study found that the less stable and more uncertain the credit is, the less likely it is to have a positive effect on stimulating R&D. One reason Congress has not made the credit permanent is because the expenditures must be scored for five years, raising the budgeted cost. While extending the credit each year does not lower its actual cost significantly, it does allow the costs to be passed on to next year’s budget.

A Policymaker’s Guide to Internet Tax

March 19, 2013 - 12:00pm - 1:30pm
Rayburn House Office Building
45 Independence Avenue Southwest

Ever wonder what the difference is between the Internet tax moratorium and the Main Street Internet Tax Fairness Act? If so, you aren’t alone. In fact, the Internet and telecommunications are subject to a variety of taxes at different levels of government. Read more »

A Policymaker’s Guide to Internet Tax

March 19, 2013
| Reports

Within the first two months of 2013, identical bills in the U.S. House and Senate have been introduced that would provide a federal framework in which states could opt to require remote sellers to collect state sales taxes. A bill has been introduced in the U.S. Senate to permanently extend the moratorium on taxation of Internet access, the Florida legislature passed a law to tax Internet sales from out-of-state sellers, and the online retail giant, Amazon, has agreed to collect a 6.35 percent sales tax from consumers in Connecticut. Are these decisions inconsistent or unrelated to one another? Why should Amazon pay taxes in Connecticut and not in, say, Oklahoma? There is no shortage of interest among states and localities in new or better-enforced sources of revenue from the Internet, yet in the current legal environment of Internet taxes, there is confusion over the most appropriate policy options moving forward.

This guide explains the state of current law and how policymakers should approach taxing online, digital activity. It focuses on four particular areas: the Internet tax moratorium, multiple and discriminatory taxes of digital goods, discriminatory taxes on wireless services, and the collection of sales taxes for online purchases of products. Too often these issues are confused, or even worse, lumped together by the bumper-sticker debate between “Don’t Tax the Net” and “Level the Tax Playing Field,” but in fact these issues are distinct and deserve distinct policy responses. ITIF believes Congress should address each of these four areas through proposed legislation.

The report focuses on four pieces of federal legislation and recommends:

  • An Extension of the Internet Tax Freedom Act, which prohibits taxing of Internet access, multiple taxes on Internet transactions, and discriminatory taxes on online transactions, and sunsets on Nov. 1, 2014. ITIF is in favor of making the moratorium permanent to prevent unnecessary and excessive taxation that could reduce the benefits of the digital economy.
  • The Digital Goods and Services Fairness Act should prohibit state and local governments from creating multiple or discriminatory taxes on digital goods and services. ITIF calls for passage of the bill because it will help ensure a fair, consistent, and non-discriminatory tax system.
  • The Wireless Tax Fairness Act imposes a five-year moratorium on all new discriminatory taxes on mobile phone services or providers. ITIF is in favor of the bill, to prevent undue taxation on the wireless economy, but argues the moratorium should be made permanent.
  • The Marketplace Fairness Act of 2013 authorizes states to require collection of sales and use taxes on goods sold online. ITIF calls for the passage of the bill to reduce discrimination against sales from traditional, brick-and-mortar companies, and increase overall tax fairness.

ITIF Assesses Potential Overhaul of U.S. Internet Tax Policy

WASHINGTON (March 19, 2013) - The Information Technology and Innovation Foundation (ITIF) released a report today analyzing the current state of Internet tax policy and the packages being considered to assist policymakers and the public in making better decisions on how to reform the system. A Policymaker's Guide to Internet Tax provides a comprehensive review of the proposals and their potential impacts on innovation and economic growth in the Internet sector. Read more »

A Policymaker’s Guide to Internet Tax

March 19, 2013
IPI and ITIF hosted a lunch briefing to untangle Internet tax policy.

Ever wonder what the difference is between the Internet tax moratorium and the Main Street Internet Tax Fairness Act? If so, you aren’t alone. In fact, the Internet and telecommunications are subject to a variety of taxes at different levels of government. At least four different tax proposals are either in Congress or about to be introduced that would reduce tax discrimination in the e-commerce, telecom and Internet space. They sound similar but have very different intents and outcomes. Read more »

See video

Lawmakers Say Online Sales Tax May Have to Stand on its Own

ITIF President Rob Atkinson, speaking at a Politico Pro event, said the Marketplace Fairness Act bill doesn't need to be watered down to appease some parties.
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