Online Shopping: Legal Challenges for Taxing Authorities

E-commerce offers customers the chance to eliminate many stages in the sales/distribution chain. The mark-ups that occur between manufacturers, wholesalers, distributors, retailers and consumers can add the cost of goods purchased by consumers. In contrast, when consumers deal directly with manufacturers on the internet, the process whereby intermediaries between the manufacturer and the final consumer are eliminated from the supply chain is known as "disintermediation".

E-commerce differs from mail order and telephone solicitation, the two most traditional forms of business using remote sellers, because these involve the delivery of goods by common carrier to and from a specific physical location. In short, there is still a physical delivery of property from an identifiable seller to an identifiable buyer. States jurisdictions have wrestled with the issue of collecting taxes from out-of-state mail order sellers and telephone solicitors for decades; e-commerce enables almost any business large or small to sell to customers in different states and countries.

Out-of-state vendors engaged in e-commerce do not have an obligation to collect sales taxes if traditional remote sellers, such as mail-order and telephone solicitation vendors, do not collect sales taxes. Sales tax cannot be levied on a transaction just because the purchaser uses e-commerce to access the seller's computer to acquire property, goods or service. Also, states cannot use an "agency nexus" theory to claim that a purchaser's ISP is an in-state agent for the seller.

Commerce Defies Traditional Tax Jurisdictions

Using the internet, a company can, in theory, move its e-commerce business to a tax-haven country and conduct e-commerce outside the jurisdiction of any country that would otherwise tax the transaction.

Also, because of the speed in which transactions occur and the frequent absence of a traditional paper trail, it will be very difficult, if not impossible, to apply traditional notions of tax jurisdiction. This is especially true with intangible property transmitted by computer such as software, digital music or electronic books and services.

While governments which depend on an income tax might have difficulty taxing e-commerce, states and local jurisdictions that rely on sales and property taxes to fund their operations could be in deeper trouble.

Lack of a Paper Trail

Unless a tangible product is delivered by common carrier, it is impossible for a taxing jurisdiction to determine that an e-commerce transaction occurred. For instance, if a consumer downloaded a computer game from a computer located in a foreign country for $19.95, paying by credit card, how would a taxing jurisdiction discover that such a transaction occurred? How would it determine the physical location of the seller? What if the purchaser had an internet service provider (ISP) in a foreign country as well?

Transmitting Property from Tangible to Intangible

Consider the following issues: Would the receipt of a computer game in electronic form convert the game into a non-taxable intangible item, whereas the purchase of the same game at a local computer store would be taxable because it is a tangible product?

Also, if a newspaper has an exemption from sales tax will a newspaper that is downloaded in electronic form receives the same exemption? If not, would the tax levied on the electronic version of the newspaper be a discriminatory tax in violation of the commerce clause?

E-cash Issues

Electronic money is a type of debit card similar to a telephone calling card where the card itself keeps track of the remaining balance, rather than a third party bank. This could emerge as the preferred medium of exchange for e-commerce. E-cash will have the same anonymity as cash does in the current "underground" economy. Use of e-cash will further frustrate states and local jurisdictions on taxing e-commerce.

Multiple Taxes

Multiple taxes on the same transaction or service, either in the same taxing jurisdiction or two or more taxing jurisdictions, are prohibited. This could occur if a state-taxed internet access services as telecommunications and then taxed located telephone services as well. Unless a credit is given to eliminate any double-taxation, such a tax would violate the prohibition against multiple taxes.

The writer is an advocate of High Court and practicing immigration and corporate laws in Pakistan since September 2001. He is a self employed and pioneer in research on electronic commerce taxation in Pakistan. His articles were published widely in the critical areas of cyber crimes, electronic commerce, e-taxation and various other topics. He wrote LL.M thesis on titled "Legislation of electronic commerce taxation in Pakistan" in which he provided comprehensive legal proposals for statutory reconstruction of tax laws for purpose of imposition of taxation on e-business in Pakistan. Currently he is conducting is research on topic 'Electronic commerce taxation: emerging legal issues of digital evidence'.

Author can be contacted by adil.waseem@lawyer.com.

Advertisement: Honest Riches - Click Here!

Advertisement: Lost AdWords - Click Here!

Advertisement: Get $1 Million A Month In Google Pay-Per-Click Ads Free! - Click Here!

Advertisement: Who Loves Money? - Click Here!

Advertisement: SEO Elite, the GrandDaddy of SEO Software - Click Here!

Canada.com
Microsoft Hopes Greenfield Buy Bolsters European eCommerce
IT Business Edge, KY - 6 hours ago
Microsoft hopes the deal will be a quick way into the European market for shopping comparison Web sites. Greenfield runs comparison Web site Ciao, ...
Microsoft Acquires Greenfield Online, Bolsters European Search and ... Seeking Alpha
Greenfield Online Announces Agreement to Be Acquired by Microsoft ... MarketWatch
Microsoft’s diversification continues HEXUS
ITworld.comall 366 news articles

eCommerce Gets a Wake Up Call
WebProNews, KY - 18 hours ago
This case will likely have a large impact on eCommerce as a whole. More lawsuits will probably start coming out of the woodwork. ...

Introducing SkyCart.us – an Ecommerce Shopping Cart Software Service
PR.com (press release), NY - 12 hours ago
NEW Results, LLC, a technology solutions company, has just released an ecommerce shopping cart software service that any small businesses can use to sell ...
Introducing Quebert.net – an Email Marketing Software Program ... PR.com (press release)
all 2 news articles

PR Web (press release)
Top eCommerce Software Blogger Linda Bustos Wins Search Engine ...
PR Web (press release), WA - Aug 28, 2008
Elastic Path Software Blog "Get Elastic" educates webmasters on analytics, search marketing and eCommerce best practices. Vancouver, BC, Canada (PRWEB) ...

Paid, Inc. Enhances AuctionInc eCommerce Shipping Calculation ...
MarketWatch - Aug 26, 2008
www.paid.com) has rolled out additional enhancements designed to increase flexibility, functionality and security for eCommerce vendors using its innovative ...

First Hosted Ltd completes global e-commerce solution for novelty ...
PRLog.Org (press release), Romania - Aug 27, 2008
First Hosted Ltd (FHL) managed the implementation by tailoring the solution to meet BLUW’s business needs in finance, e-commerce, customer relationship ...

Webplus Shop Launches New Ecommerce Web Hosting Affiliate Program
PRnine (press release), CA - Aug 27, 2008
WebplusShop.com), the leader in affordable ecommerce web hosting, announced today the launch of a new affiliate program for webmasters and others who would ...

Web Hosting Firm Partners with Run DMC Hip Hop Alum
WebSite Host Directory (press release), OR - 3 hours ago
To facilitate ecommerce on Worlds, Paid will be integrating its patented ecommerce technology into WORLDS' online 3-D marketplace. ...

Managing An Ecommerce Business
Corsavoo.com, France - Aug 27, 2008
Tracking a business’s cycle is easy. All the business owner needs to understand is a few basics, and track how they interact, and how that interaction ...

InSite Software Reveals Insourcing Trend for Integrated Ecommerce ...
Business Wire (press release), CA - Aug 26, 2008
InSiteCommerce is the next generation ecommerce solution designed to integrate B2C and B2B sites into ERP systems to automate the order entry and customer ...

Is ClickBanks Popularity Drawing To An End?

ClickBank is the Internet's most popular payment processor for online payments but with many rivals appearing on the scene is ClickBank's popularity drawing to an end?ClickBank allows... Read More

10 Reasons To Survey Your Visitors, Subscribers And Customers

1. To find out what type of content visitors want to see on your web site. This should increase repeat visits to your site.2. To find out... Read More

A Beginners Guide To Setting Up A Successful Online Store

A beginner's guide to setting up a successful online store Online selling is by no means a simple task. To sell products online not only requires making... Read More

Cost Effective Ecommerce Solutions

Ecommerce use to be about spending thousands of dollars on setting up your shop and hundreds of dollars on getting a merchant. My, how things have changed... Read More

Outsourcing Your Ecommerce Order Fulfillment

When your eCommerce business grows to the point where you can no longer package and ship the orders yourself, it's time to begin outsourcing your order fulfillment.... Read More

How Measuring Key Performance Indicators Can Improve E-Commerce Strategy - Part Three

The first article of this series discussed page views per session as a kind of early warning system key performance indicator (KPI) for your website. The second... Read More

Why Arent People Buying From Your Ecommerce Website?

Your stock is tempting, your prices right - your ecommerce website is good to go, but somehow the customers just aren't buying. So where are you going... Read More

Electronic Commerce and WTO

The Internet may not be useful for all businesses, nor do all have to develop an Internet information strategy. Some businesses are concerned with the start-up costs... Read More

Simple Steps to Start a Profitable Member Only, Subscription Web Site

Having a successful member only, paid membership site is one of the best ways to make money online. A successful membership site can give you the steady... Read More

The Five Most Commonly Encountered, Off-putting E-commerce Errors

While getting less public handwringing than during holiday season, the "abandoned shopping cart problem" continues to wreak havoc on online sales. Recently I judged a raftload of... Read More

Online Customer Service - The Cornerstone of a Successful Online Business

Online customer service is still one of the most frequently overlooked aspects of running a successful online business. Yet, in the highly competitive world of Internet business,... Read More

How To Accept Credit Cards Online

Anyone with an online business, whether for auctions, services, or virtually any type of product, has asked the same question at some time during their quest to... Read More

eCommerce Software Solutions

All of the long, grueling nights and an unknown number of working weekends spent converting your dream into reality finally paid off-in a big way! Affiliates are... Read More

Starting An E-Commerce Business

The development and expansion of the Internet has made business opportunities, once only available to the wealthy, available to nearly everyone. In the past, opening a business... Read More

Get Out of The Way

Get out of the way and make it easy for your visitors to find what they want.Recently I completed a report for a site that was the... Read More

Credit Card Merchant Account Basics

Knowing which credit card merchant account to get can be very confusing. There are thousands and thousands of banks, merchant account providers and third party sales teams... Read More

Online Shoppers Say They?ll Buy from Small and Large E-Businesses Alike

As the holiday shopping season begins in earnest, consumers say they're just as willing to buy from small online retailers as they are from large, national e-commerce... Read More

How To Stay Cutting Edge In Online Business

Let's face it, there's just way too much information out there for any one individual to try to keep abreast of. And yet, if we shut ourselves... Read More

10 Second Internet Person, sound familiar?

Some people do not understand the Internet idea of online commerce, but then again some people do not understand themselves either. To fully understand Internet Commerce you... Read More

Accept Credit Cards Online Without A Merchant Account

It is often assumed if you want to accept credit cards on your website that you must have a merchant account. This is not the case. You... Read More

What Does It Take to Make Money Online?

What a loaded question! Let's narrow that down a bit and take it from the perspective of someone who wants to work from home and make money... Read More

Intranet Portals ? Personalisation and Customisation

The key difference between an (old-fashioned) Intranet and a PortalWhat typifies a modern intranet portal is that there is a standardised user interface ("UI") with a built... Read More

Grow your Business with Emarketplace - Part III

Increase Company ProductivityAfter years of hard work, finally your business started to pick up. You are selling more products then ever! You have lined up a good... Read More

Your Readers are Publishers Too

Too often we charge ahead and treat the web as if it were just like any other medium. We know it isn't, but somehow we just can't... Read More

Shopping Carts and the E-Aisles

Have you ever gone to the store and thought you only needed a few things so you didn't grab a cart? The next thing you know your... Read More

Make That 3 Billion

My previous article I wrote called "One Point Two Billion" attracted quite some attention, the downloads through all the article syndication services has been astronomical compared to... Read More