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.

Electronic Commerce - An Overview

The benediction of science and technology are so many to describe. But the invention and application of internet services deserve special mention. Internet services are being randomly used throughout world. Right from shopping to fixing a business deal, everything is being done with the click of a mouse. People have become computer savvy. Their lives have been shaped by various electronic gadgets. With their dependency of electronic gadgets, terms like e-book, e-cards, e-commerce etc. have evolved.

The term ‘e-commerce’ is now a very well-known word. The word ‘e-commerce’ itself signifies ‘e-commerce through electronic medium’. It can also be described as the selling and buying of goods and services on the internet. A new term e-business has also evolved to mean the same thing. We can say it is commerce conducted electronically or simply interpret as an online business. It includes customer service functions, sales, marketing, advertising and many more. It also conducts exchange of goods, information, products or services via electronic medium.

Through this medium a buyer can make his purchase just with a click of a mouse, sitting at home but the seller had to crack hard nuts. So conducting e-commerce is not that easy as the word sounds. To start an online business a big and proper planning is the first thing. There should be an adequate source of production. Proper funding also plays a crucial part in any kind of business to keep it going. But that’s not all. To create markets for the products and to collect customers for selling those products are also vital points to remember. To taste the pinnacle of success, a strong customer service should be there.

E-commerce is also advantageous to other traditional businesses in many respects. If an e-commerce site is implemented well, the cost of transaction is quite lower than others. Moreover an online shop never closes. They always remain open and this provides the customers the opportunity to shop anytime of the hour. With the advent of e-commerce, the concept of shopping from home has emerged. Information about any article is available on the net. Customers can search and gather knowledge according to their needs. Before making any kind of purchase, the customers could widen their frontiers of knowledge so that they did not repent later. Geographic limitations are no more a hindrance in commerce. E-commerce makes the products and the services easily available to the customers without any geographical hurdles. Through this type of commerce the sellers of the goods and services are reaching easily to a wide range of customers, both inland and abroad. The buying process in this type of commerce is also advantageous. It provides the customers with a platform to search product information through global markets with a wider range of choice. They can tally the prices also to buy the cheap but the exclusive article. Delivery time and costs are saved when such purchases are made like e-books, audio clips, software games etc. Distance education is delivered via internet. Global reach of internet able different organizations to send messages worldwide, exploring new markets that traditional markets have difficulties accessing.

But there are also various disadvantages in this kind of commerce for both the buyers as well as the sellers. Expenses of getting popular server for the organization are very high. It is difficult enough to get people know about the product of the company and to made them visit the site. The demerits involved from the buyer’s angles are mainly the touch and feel factor. You cannot smell the product, nor can you take its warmth. You are only guided by feature list and the visual impression. Above all to get all these, rather to enjoy the beauty of the product you have to count days for its arrival. If the shipping is lengthy, certainly it will take the test of your patience. And when you come to realize what you purchased is not what you were looking for or the quality is not at par, there is no easy way to get it exchanged or return it to the seller.

With all these merits and limitations, E-commerce is here to stay. Because it is powered by the most precious thing in modern world, yes, it is time. In future it may change its color, can shift or penetrate into a different media, but the purpose will never be eradicated. In this fast paced world, people want to buy time so that they can invest it in earning money and E-commerce targets that. So, you know who will win.