E-Commerce's Tax Free Days Are Numbered

John Marshall, the fourth Chief Justice of the U.S. Supreme Court, famously said, "The power to tax is the power to destroy." Congress has thus protected the development of e-commerce from the "destructive" power of taxation, under its power to regulate interstate commerce.

Local governments have decried the inability to tax sales over the Internet and said that they've lost many billions in tax revenues as a result. Others have argued that local businesses, especially small businesses, are unfairly disadvantaged by the favoritism shown to e-commerce.

The time is coming when e-commerce will be taxed in much the same way that everything else that's bought and sold in the real world is taxed; it is inevitable.

Will that kill e-commerce? No.

Consumers have responded to lower prices and free shipping online, which is why Amazon has aggressively promoted it. But e-commerce is ultimately more about convenience and efficiency ("I don't have time to go out and buy this") than cost savings.

Future e-commerce taxation will have an as-yet unclear effect on buyer behavior. It may in some cases motivate people who were intending to buy online, to buy offline (but probably not that many). It may moderate the growth of e-commerce (but probably not by much).

What it won't in any way affect is the growth of the Internet as a research and shopping tool for consumers and an important advertising vehicle for marketers that want to reach them.