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.