P1: IML/FFX P2: IML/FFX QC: IML/FFX T1: IML
WL040C-179 WL040/Bidgolio-Vol I WL040-Sample.cls June 20, 2003 13:22 Char Count= 0
422 TAXATIONISSUESe-commerce issues at the federal level will likely be ad-
dressed in the next few years.
The issues and discussions present an opportunity for
taxpayers, tax practitioners, and others to provide input
to the debate to shape the future redesign or design of tax
systems.GLOSSARY
Consumption tax A tax on what a person consumes,
generally based on the price charged for such items,
in contrast to other types of taxes, such as an income
tax, which is a tax on what a person earns. As with
the federal income tax, which does not tax all types of
income, a consumption tax may exclude certain types
of items consumed. For example, many state sales tax
systems exempt food. A consumption tax could be in
the form of asales tax, a consumed income tax (where
the tax base is income less savings), or a value-added
tax.
Nexus A connection between a taxpayer and a jurisdic-
tion that allows the jurisdiction to subject the taxpayer
to taxation without it being viewed as unfair. For state
taxation, the degree of the connection required is dic-
tated by the U.S. Constitution (Due Process and Com-
merce Clauses) and federal legislation.
OECD (Organization for Economic Cooperation and
Development)An organization of industrialized coun-
tries that works to promote policies to achieve high
economic growth and employment, rising living stan-
dards, financial stability, and expansion of world
trade; has held major conferences on taxation and
e-commerce and formed technical advisory groups
(TAGs) of experts from government and businesses to
discuss key e-commerce taxation issues.
Sales tax A tax imposed on the sale of property and
services, generally imposed on retailers (and in some
states, service providers) who are allowed to collect it
from buyers (that is, to pass the tax onto buyers). In the
United States, the District of Columbia and all states ex-
cept for Alaska, Delaware, Montana, New Hampshire,
and Oregon impose a sales tax. Most states impose the
sales tax on tangible personal property and some ser-
vices. The states have a variety of exemptions—prop-
erty and services not subject to sales tax, such as certain
clothing and food. The exemptions vary from state to
state.
Use tax A tax complementing a sales tax and imposed
by all U.S. jurisdictions that also impose a sales tax;
generally applies when a taxpayer buys a taxable item
outside of the state for use inside the state. For exam-
ple, when a resident buys a taxable item (such as a
book) from a remote vendor (one without a physical
presence in the state), the resident is responsible for
submitting the use tax to the state tax agency.
Value-added tax (VAT) A tax on the value added to
goods and services at each stage of production and dis-
tribution. For example, if a manufacturer adds value to
a raw good in the form of wages, the wages are subject
to VAT. There are three methods that a jurisdiction may
use to measure value added: credit invoice, subtrac-
tion, and addition. The most common method is thecredit invoice that measures value added as sales less
purchases (with the difference being the value added
by the taxpayer who had the sales). The amount of tax
collected under each method is the same and gener-
ally is the same amount as would be collected under
a sales tax. A commonly cited benefit is that the tax is
collected throughout the production and distribution
process rather than only at the final retail sale stage (as
is the case with a sales tax).CROSS REFERENCES
SeeElectronic Commerce and Electronic Business; Legal,
Social and Ethical Issues; Public Accounting Firms.REFERENCES
Advisory Commission on Electronic Commerce
(n.d.). Retrieved November 1, 2002, http://www.
ecommercecommission.org/
American Institute of CPAs (AICPA) (2001).Tax policy
concept statement no. 1—Guiding principles of good
tax policy: A framework for evaluating tax propos-
als. Retrieved November 1, 2002, from http://ftp.
aicpa.org/public/download/members/div/tax/3-01.pdf.
Cline, R. J., & Neubig, T. S. (1999).The sky is not falling:
Why state and local revenues were not significantly im-
pacted by the Internet in 1998.Washington, DC: Ernst
& Young.
Council on State Taxation (COST) (2002). 2001 State
study and report on telecommunications taxes. Spe-
cial Report 9 (2). Washington, DC: Bureau of National
Affairs.
European Union (1997). A European Initiative in
Electronic Commerce, COM (97) 157. Retrieved
November 1, 2002, from http://www.cordis.lu/esprit/
src/ecomcom.htm
Federation of Tax Administrators (FTA) (1997). Sales
taxation of services: 1996 update(Research Report
No. 147). Washington, DC: Federation of Tax Adminis-
trators.
Government Accounting Office (GAO) (2000). Sales
taxes—Electronic commerce growth presents challenges:
Revenue losses are uncertain(GAO/GGD/OCE-00-165).
Washington, DC: U.S. Government Accounting Office.
Mazerov, M., & Lav, I. J. (1998). A federal “morato-
rium” on Internet commerce taxes would erode state
and local revenues and shift burdens to lower-income
households.Retrieved November 1, 2002, from the
Center on Budget and Policy Priorities Web site:
http://www.cbpp.org/512webtax.htm
OECD (1998). Electronic commerce: taxation frame-
work conditions.Retrieved November 1, 2002, from
http://www.oecd.org/pdf/M000015000/M00015517.pdf
OECD (2000). Clarification on the application of the
permanent establishment definition in e-commerce:
Changes to the commentary on the model tax conven-
tion on Article 5.Retrieved November 1, 2002, from
http://www.oecd.org/pdf/M000015000/M00015535.pdf.
OECD (2001).Tax treaty characterization issues arising
from e-commerce.Retrieved November 1, 2002, from
http://www.oecd.org/pdf/M000015000/M00015536.pdf.