February 28, 2000 Amazon.com, iVillage.com, Ebay, Yahoo and America Online are some of the more well known e-businesses on the Internet. Recently, several new e-businesses became clients of ours. It is likely more will. We publish this to help those potential e-businessers consider potential tax credits and incentives before committing to locate an e-business in a particular region. Many countries and states offer a variety of tax credits, tax holidays and other incentives to encourage a business to locate in their jurisdiction. Important Cybertax Issues for e-business The Internet Tax Freedom Act (ITFA), enacted in October 1998, provides a three-year moratorium on new state taxes on Internet access charges, and on “discriminatory” and “multiple” taxes. However, the ITFA does not eliminate existing cybertaxes--a grandfather provision allows states that imposed taxes on Internet access before October, 1998 to continue to collect those taxes. Additionally, if an e-business company has a physical presence in a state, t he company will need to collect the state’s sales and use taxes from its online customers. Therefore, it is important for e-businesses to understand cybertax issues and plan for compliance/financial obligations. Some points to consider: • Understand the administrative burden of cybertax liabilities. Thirty thousand taxing jurisdictions in the United States can require up to 6,500 different tax forms. Internationally, more than 200 countries impose direct and indirect taxes on transactions conducted via the Internet. • Establish operations in cybertax-friendly states (e.g., California, New York) or in states without a sales tax (e.g., Delaware, Oregon). The applicability of state and local taxes on business entities, as well as sales tax collection responsibilities, is based primarily on the degree of business activity or physical presence in the jurisdiction (i.e., nexus). • Consider foreign tax requirements, even if the e-business is not yet operating in a foreign jurisdiction. Internationally, cybertax-friendly countries include Bermuda, Netherlands and Singapore. An e- business’s “permanent establishment” (defined by each country’s rules and tax treaties) will determine which country’s tax rules apply. Also, understand requirements related to customs, value-added taxes, and other duties/taxes, and consider the costs of compliance. Investigate tax treaties and what types of transactions will require tax returns to be filed. • Evaluate potential tax credits and incentives before committing to locate an e-business in a particular region. Many countries and states offer a variety of tax credits, tax holidays, and other incentives to encourage e- businesses to locate in their jurisdiction. Some of these incentives are defined by statute and are available to all companies; however, many incentives are negotiable. • Create an audit trail and understand record retention policies. Tax authorities generally require that records, including electronic records, be retained for periods ranging from three to seven years. Many tax authorities still require paper documents with original signatures. • Consider the tax implications of an e-business strategy before finalizing the plan and beginning the design and implementation phases. Relatively minor operational changes or modifications to contractual terms can dramatically impact the business’s tax obligations. • Build tax information and collection fields into smart web sites, but do not activate these fields. E-businesses that prepare now will be ready when and if the company becomes subject to tax requirements due to changes in either business operations or tax policy. All e-businesses should participate in the cybertax policy debate. The Organization for Economic Cooperation and Development is leading efforts to create uniform international tax rules for e-business. In the state and local tax arena, the ITFA created a congressionally appointed Advisory Commission to study cybertax issues. After holding three meetings, the Advisory Commission is divided over two policy options-- (1) making the Internet a tax-free zone, or (2) simplifying the current sales and use tax system, and expanding the obligation to collect sales tax to all remote sellers. Welcome Nadine and Chadina! In an effort to deliver better service we have divided the administrative responsibilities of the five businesses between two new administrative assistants. Tax, Accounting and Legal will be handled by Chadina Carriman and Investing activities and Insurance will be handled by Nadine Boodhoo. When you call on your particular matter please ask for the appropriate assistant who will first try to assist you, and if they cannot, will then assist me in handling your matter. Thanking you in advance. If you have any questions about these or any other tax or financial issues, please call me.