USS Clueless              Voyages of a restless mind

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Stardate 20011224.1255 (On Screen): I grew up in Portland, Oregon. Oregon is one of the few states to not have a sales tax. Every once in a while some do-gooder comes up with all sorts of wonderful humanitarian things which the state could do if only it had more tax revenue, and looks fondly on all the money that could be raised if only there were a moderate sales tax. But the constitution of the State of Oregon requires that any proposal for a new tax must be presented to the voters, who must pass it by a two-thirds majority. It only takes a small part of the voting population to get a measure on the ballot, though, so like clockwork every few years there is a ballot measure to impose a sales tax, and every time it goes down in flames, often by 3:1 against. The people of Oregon really despise the idea of a sales tax.

Portland is sometimes referred to as the 4 county area, because its metropolitan area covers Clackamas, Washington, Multnomah and Clark counties. But Clark County is the oddball, because it's on the other side of the river in Washington State. Vancouver WA is located there, but Vancouver is pretty much a bedroom community for Portland, just as are Gresham, and Beaverton, and Tigard and Forest Grove and Oregon City. Traffic between Vancouver and Portland primarily travels on I-5, which crosses the Columbia River on an 8-lane bridge. Just in passing, it's worthy of note that the State of Washington has a quite heavy sales tax.

So at the last exit on I-5 going north, just before crossing the bridge, there is an immense shopping center (at Jantzen Beach, which used to be an amusement park with a wooden roller coaster). It is not particularly convenient for Portlanders to reach, but it is very busy nonetheless, with its parking lot filled with cars with Washington plates. They can cross the river and do their shopping in sales-tax-free Oregon and avoid the 7% (or probably more now) Washington tax. As a result, merchants in Vancouver have been slowly dying for 40 years ever since that bridge was built. And there is absolutely nothing that they can do about it, because the Constitution forbids states from placing taxes on good crossing their borders.

It's been said that the Internet treats censorship as damage and routes around it. Commerce treats taxation as damage and also routes around it. I'm well aware of the necessity for taxes, but enlightened individuals will still try to reduce their tax burden if they possibly can. And there is nothing easier to avoid than a sales tax.

One of the reasons for the boom of online retailing (you mean you didn't notice it?) is that it is a continuation of catalog sales. Both of them are boosted by the fact that if goods are shipped interstate and if the seller has no direct commercial presence in the buyer's state, then the seller does not have to charge sales tax. So I can go down to my neighborhood store and buy a computer and chip in 8% to Calilfornia, or I can buy it from Dell and pay less. The savings can be enough to justify the hassle of mail order and the extra expense of shipping. And if that happens just within the US, it happens even more so between nations.

In that case, the nations trying to prevent that sort of thing do have the legal ability to place tariffs on physical goods crossing their borders. So someone in Germany buying a Dell computer may pay a VAT on it anyway. But what of electronically-delivered goods? For example, I recently spent $350 on a full license for CityDesk, a content management system which I'm going to start using for this web log in a couple of days. I entered my credit card, was charged for it, then downloaded it and had it running in ten minutes. Delivery was instantaneous and virtually free; no waiting for FedEx. It happens to be the case that I am in San Diego and the server from which I purchased it was in New York, but I could just as easily have been in Berlin and the transaction would have been the same. By the same token, the server could have been in California, but in that case I would have had to pay sales tax on it. But since everything on the web is within arm's reach, it is a curious fact that companies physically removed from me have a commercial advantage over vendors in my own state. (Did someone say "Globalization"?) So how is a European country to collect VAT on products which invisibly cross their borders on wires? In one sense it's smuggling; in another sense it's basically not enforceable and that's how it goes. The answer is that they can't.

Not that a little thing like impossibility will stop bureaucrats; they'll just pass a rule anyway. Which is what they've done: they've decided that any company which sells anything electronically into the EU must charge a tax on it and remit that to the EU, even if the company is not located in the EU and has no commercial presence there.

That can't be enforced on any American company which has no commercial presence in the EU, such as Fog Creek Software. The EU does not have the ability to lay taxes on American companies; there's no jurisdiction.

"We think this is an important step in the right direction," said Katrin Gaertner, head of Germany media conglomerate Bertelsmann's liaison office in Brussels. "We're striving for a level playing field."

Surely they are, just as the merchant's in Vancouver Washington wished that they didn