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Legal Challenges for Taxing Authorities |
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 E-commerce offers customers the chance to eliminate many stages in
the sales/distribution chain. The mark-ups that occur between
hay fever prevention
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.
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
is an advocate of High Court and practicing immigration and corporate
laws in Pakistan. He is a pioneer in research on electronic commerce taxation. His
articles were published in the critical areas of cyber crimes,
electronic commerce, e-taxation and other topics. He wrote LL.M
thesis, 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. He is conducting research on ‘Electronic commerce taxation: emerging legal issues
of digital evidence’.
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