Class Objectives

1. Summarize basic principles of sales and use tax as they apply to Internet sales.

2.  Explore some web-based references for determining sales and use tax.

3.  Discuss current proposals to reform the taxation of Internet sales.

4.  Discuss Internet tax havens.
 

Background Reading

1.  Basic Principles

Required:
Yancey, Mitchell, and Lipp, "Electronic Commerce Snares Sellers in Multistate Tax Web", Practical Tax Strategies (1999).   Distributed in print form in class, or on the web at http://www.willyancey.com/ecom-tax-pts99.htm

Optional:

• Hardesty, E-Commerce Tax News http://ecommercetax.com
• "Sales and Use Tax and E-Commerce - Part 1", April 30, 2000, http://ecommercetax.com/doc/043000.htm
• "Sales and Use Tax and E-Commerce - Part 2", May 7, 2000,  http://ecommercetax.com/doc/050700.htm
• "Current Issues in Taxation of E-Commerce", June 2000, 28-page special report, http://ecommercetax.com/Special0500.htm or request copy from Will Yancey.

2.  Web-based References

Browse a few of these web sites.  How easy is it to determine the applicable tax rate for the products you or your clients sell on the Internet?   Do not be surprised if you cannot get a simple answer.

Tax and Accounting Sites at http://www.taxsites.com/state.html
Vertex CyberTax Channel at http://www.vertexinc.com/taxcybrary20/cybertax_channel/taxchannel_70.asp

3.  Current Proposals on Internet Taxation

Check the status of the major Internet tax bill in the 106th Congress, HR 3709, Internet Nondiscrimination Act, at http://thomas.loc.gov/

• Advisory Commission on Electronic Commerce at http://www.ecommercecommission.org/
• National Governors Association, Sales Tax Simplification at http://www.nga.org/106Congress/SalesTax.asp
• Representative Chris Cox, Internet Tax Freedom Law at http://cox.house.gov/nettax/
• Sidney S. Silhan, "If It Ain't Broke Don't Fix It:  An Argument for the Codification of the Quill Standard for Taxing Internet Commerce", forthcoming in the Chicago-Kent Law Review.  Advance draft available from Dr. Yancey.
• General Accounting Office, "Sales Taxes: Electronic Commerce Growth Presents Challenges; Revenue Losses Are Uncertain", GAO Report GGD/OCE-00-165, June 30, 2000, at http://www.gao.gov/new.items/g600165.pdf

A new development in California --- Assembly Bill 2412 would require online sellers to collect sales tax in California if they are affiliated with companies that have stores in California.  The bill passed the California Assembly on May 30 and the California Senate on August 30.  Read David Hardesty's articles at http://ecommercetax.com/doc/060200.htm   and http://www.ecommercetax.com/doc/090300.htm
Trace the bill text and history at http://www.leginfo.ca.gov/bilinfo.html
 
 

One method of avoiding tax nexus is to locate the server in a tax haven country with no or minimal taxes.

The Organization for Economic Cooperation and Development (OECD) has issued a report on harmful tax practices from international tax havens.  See the summary and links to the full report at www.oecd.org/daf/fa/harm_tax/harmtax.htm
See review article by David Hardesty at www.ecommercetax.com/doc/071600.htm

A comprehensive site describing tax havens is TaxCape at www.taxcape.com

The Principality of Sealand is a tiny independent country located on a manmade platform in the North Sea.  HavenCo. Ltd. is installing an Internet server center on Sealand that will be outside the jurisdiction of any national government.  Read about it at http://www.wired.com/news/business/0,1367,36749,00.html or Garfinkel, Simson, "Welcome to Sealand Now Bugger Off", Wired, July 2000, pp. 230-239.  (Article suggested by Chip Miller.)
Sealand's web site is at http://www.sealandgov.com/
HavenCo Ltd. web site is at http://www.havenco.com/
Commentary about HavenCo and Sealand is at http://slashdot.org/article.pl?sid=00/07/02/160253&mode=thread  (Link suggested by Jeff Kreibel.)

Entrepreneurs in Bermuda are developing old military facilities into Internet server sites.  See a review article at
http://cnet.com/news/0-1007-200-2173889.html