Saturday, 1 October 2011
10:49:33 PM (GMT)
Why Internet Companies generate tax issues
-E-commerce is a new business model that will create challenges to the tax system
1. Location: factors raise tax issues at the international and state level not the
federal. Fore example, the supreme court ruled that a state may only require a vendor
to collect a sales tax if a vendor has a physical presence at a state (Amazon).
2. Nature of Products: Internet sales allow someone types of products to be delivered
in digitalized form rather than tangible form. This raises an issue at a state level
as to whether sales tax applies and in which states income is generated for based on
revenue and how that revenue should be recorded (traditional inventory accounting
3. New Marketing Techniques: The internet allows the new ways of selling and buying
goods. It is an easy length between buyers and sellers and these sites can operate
without human intervention. These new techniques raise tax issues at all levels.
4. New Types of Assets: For income tax purposes, issues as to how to treat the cost
of creating or acquiring assets such as gain or loss generated from the disposition
(Capital or ordinary).
5. Making optimal use of the internet may challenge old rules: How can some
organizations be exempt from taxes? For example, a tax exempt organization might
allow donors to be listed on the organization’s website. This may cause issues as
to whether the listing is merely; 1: it is advertising 2: will a receipt generated by
and printable from the internet constitute appropriate for tax purposes?
6. Nature of transaction: The internet allows for paperless transaction and the use
of electronic cash. This concerned the national revenue service as to whether
transaction are properly reported, whether an audit, and whether new reported rules
7. The tax system faces the challenge to adapting to an economy that increasingly
ignores physical borders. It will be easier for companies to avoid tax collectors by
operating worldwide through websites based on jurisdictions that are unwilling to
share tax payers’ info.