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Tax ban boosts 'Net biz
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February 27, 1998: 2:58 p.m. ET
Clinton's proposal to bar Internet taxes called a boon to Web sales
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NEW YORK (CNNfn) - President Clinton's call for an international ban on new taxes on electronic commerce will give Internet retailers a significant edge over traditional sellers, according to one expert.
Ryan Jacob, IPO Value Monitor's director of research, told CNNfn's "Business Day" the moratorium on taxes has and will continue to draw companies to the Internet, with some -- such as Egghead Software -- focusing their businesses solely on the Web.
Clinton said Thursday that economic prosperity depends on "full development" of the Internet.
"There should be no special breaks for the Internet, but we can't allow unfair taxation to weight it down and stunt the development of the most promising new economic opportunity in decades," he said.
With Internet sales expected to double to nearly $5 billion, the president is also backing the Internet Freedom Tax Act, which -- if passed -- would allow states to tax Internet commerce like its predecessor, the mail order business, only if the merchant has a physical presence in the buyer's state.
State governors think the Internet is getting off too easily, arguing that if shops and stores pay taxes, so should online retailers.
But Jacob sees big opportunities for capitalizing on the Internet.
Here are excerpts from his interview.
DEBORAH MARCHINI, CNNfn ANCHOR: What does this have to do with the people who sell goods? I can see what it has to do for consumers. If the president prevails here, I'm not going to owe any state or local taxes on my purchases of goods over the Internet.
RYAN JACOB, DIRECTOR OF RESEARCH, IPO VALUE MONITOR: One of the advantages Internet retailers have right now is the fact that they don't have to charge sales tax as long as they don't have operations in a given state. And it does give them the advantage obviously over traditional retailers, especially for the fact that an Internet retailer has to charge shipping.
MARCHINI: Right.
JACOB: And one of the reasons why consumers would consider using the Internet more for the convenience and other reasons, is the fact that they can save on sales tax. Maybe pay a little bit for the shipping, but in the long run end up ahead.
MARCHINI: What, if anything, does this have to do with initial public offerings in order to attract your attention?
JACOB: Well, the fact that individuals don't have to pay sales tax when they purchase goods over the Internet. It gives the Internet a certain advantage over other traditional distribution channels. If the federal government or state governments were to impose taxes, obviously it would make that channel a little less attractive. It probably wouldn't stop the growth, but would slow it.
MARCHINI: Are there a lot of retailers out there that you feel will see a significant increase in business, some of whom may take their companies public to capitalize on it?
JACOB: Yeah, we have. Matter of fact, one of the more high-profile situations we've seen is Egghead Software, the software chain, decided to completely shut down their retail operations to focus solely on the Internet. They've basically felt that that's where the growth was and the retail business was actually draining money from operations because they had to compete with companies like CompUSA, but they decided the Internet was just a more attractive channel for them.
STUART VARNEY, CNNfn ANCHOR: You follow these companies which are new to issuing stock, new companies on the stock market, in fact. Are a lot of them Internet stocks?
JACOB: We're seeing more and more. Probably the two best performing deals this year are DoubleClick, an Internet advertising company, and VeriSign, a company that allows encryption over the Internet to secure Internet commerce.
VARNEY: Those two stocks are already on the market, I take it?
JACOB: They're already on the market.
VARNEY: And they are above their offering price?
JACOB: Well above, and two, three times above their original filing ranges. Investor demand is very high for these types of stocks right now, and because of this performance, we expect to see more in this area over the coming months.
VARNEY: You can make money on the Internet. Not just selling something on it, but providing services with the Internet. It's a profitable business?
JACOB: The Internet basically is just a new medium, and there is various ways that you can capitalize on that. It's really a new distribution channel for companies. It's also a new way to put forth information that people are just starting to get the hang of.
MARCHINI: Real quick question. Capital costs for retailers operating over the Internet are pretty low, so if people are going to take these companies public, what are they going to do? Just put the cash in their pockets or reinvest it in the business?
JACOB: Most of the companies now that are coming public are taking the proceeds and using it to build brand identity. Advertise on the Internet, traditional media channels. As a matter of fact, if you looked most recently, Amazon.com started to play TV commercials on the air and we'll see more of that in the future. 
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