Subject: IOTP and taxes

From: Kaye Caldwell <[email-masked]>
Date: Tue, 08 Dec 1998 20:50:24 -0800

Sorry to drop into the tax conversation late, I just became aware of the
discussion.

The problem with the tax situation as it now exists is that the question of
what entity will collect the tax owed by the purchaser, and on what basis, is
in a state of flux.  Certainly in the U.S., it is not now the
responsibility of
many merchants to collect the tax, although certainly the tax agencies would
prefer to be able to compel them to do so.  The U.S. Supreme Court and
Congress
have declined to allow that, due to the complexities of complying with up to
30,000 possible taxing jurisdicitons in the U.S. alone, all with different tax
rates and (to a lesser extent) which tax different products.

One of the other big issues in this area is privacy.  Mr. Hardy put it exactly
right: taxes mean "who, what, where, when, and how much".  Transporting all of
this information presents severe privacy issues.  When it comes to taxes we
cannot have all 3 of: privacy, destination-based taxation, and seller
collection.  Two of the three can be achieved, but NOT all three.  There are
mechanisms for dealing with this that do NOT involve seller collection, or do
not involve destination-based taxation, however achieving them is politically
difficult in the U.S and perhaps as well in Europe.

To make the issue more clear: imagine if every time you used your credit card
in a store the seller collected your home address (and required you to provide
ID to prove its accuracy).  This is what the tax agencies want on the
Internet.  It is ILLEGAL in California to ask for that data. And depending on
how the EU Data Protection Directive works out, it could be illegal for a
merchant to use software that transports user data to third parties.  Or it
could be illegal for an ISP to allow access to out of EU sites that use
software that transports user data from EU citizens to non-EU merchants.  Note
that the EU officials recently REJECTED the U.S. Government's proposed
merchant
privacy policy safe harbor agreement.  This is quite a serious problem.
Furthermore, the U.S. sales tax and European VAT systems are significantly
different - and harmonizing them could be difficult.

In general, I would hesitate to deal with the tax issues, particularly in the
U.S., until the recommendations of the Internet Tax Freedom Act are published
AND ENACTED.  

I would also encourage you to consider privacy issues when it comes to
consumer
purchasing mechanisms.  There is no reason that a consumer should be forced to
provide ANY personally identifiable information in order to complete a
transaction on the Internet, any more than they would do so in a store on Main
Street.

- Kaye Caldwell
Participant in the OECD tax meetings, Member of the Steering Commiteee of the
National Tax Association's Communicaitons and Electronic Commerce Taxation
Project, author of the CommerceNet white paper on Sales and Use Taxes and
Internet Commerce.

Comments on some earlier messages:

From [email-masked]:

>Equally the moritorium,
>in theory, does not relieve the trader from the usual requirements of record
>keeping and accounting to the tax authority.

But many traders in interstate commerce in the U.S. do NOT now have those
requirements, and the moratorium requires states to treat Internet traders
equivalently.

>One ought to remember that, notwithstanding a trader may be conducting
>business electronically,  most tax authorities have draconian powers of
>investigation and enforcement,

Again, not always, the U.S. Supreme Court and Congress have NOT extended
"draconian powers of
investigation and enforcement, to merchants that do not have physical presence
in the state where the buyer resides.

From: "Smith, Chris" <[email-masked]>:

>Perhaps you should go back and look at my actual
>suggestion. It is analogous to the 'Tax' button on a cash
>register. Jut because it's there doesn't mean you have to
>push it.
>
>The idea was for the Order Description to contain
>Payment Annotations - notes that might specify details
>such as "Value Added Tax UK XX% Paid UKP 1.23". If you
>as a merchant don't want to include them, then, like
>not pushing the Tax button, don't include them.
>
I would agree with this suggestion, there will need to be a mechanism for
indicating taxes.  Merchants required to collect them will need that, those
not
required to do so will simply not use the mechanism.  I would however note
that
the complexities of the data that might be required are more than you are
envisioning, for example, you may need to include exemption status handling,
product classification code, and different amounts for taxes in a state, city,
county and, to quote the AT&T tax person "mosquito abatement districts".  
(Unfortunately, he was NOT kidding.)  On the other hand, perhaps we will be
successful in reducing the complexity.

===================================
Kaye Caldwell,  Policy Director
CommerceNet 

http://www.Commerce.net
E-mail: [email-masked]
Phone: (831) 479-8743    Fax: (408) 273-6345
===================================
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