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The advent of technology that enables the transmittal of voice, data, image, and video information has been called an "information superhighway,” otherwise known as the Internet. This new technology constitutes a brand-new route for the exchange of goods and services that has yet to be fully examined. Much has been written on how the Information Superhighway affects intellectual property yet substantial questions have to be answered in regards to how this new trade route will be treated by various laws of taxation. The United States Treasury Department has identified the tax ramifications of such high-technology issues as transactions over the Internet as a "top-priority" international issue. The possibilities of the Internet are just beginning to be explored, as are the tax implications of doing business over the Internet. In such a study of new frontiers of taxation practices, the nature of Internet business itself must be examined in order to appreciate how taxation will be affected. Given that the Internet is a new phenomenon, which tax professionals are just beginning to grapple with, a greater degree of detail will be employed in outlining Internet commerce as a platform for taxation. With today’s continuously expanding Internet era, there are now many issues pertaining to the way transactions are processed over the Internet. These are not only national issues, but they are now falling on a more global scale as each country follows their own set of rules and regulations. Some of these rules include how goods and services are taxed over the Internet. As a result, the question then arises as to why there is an international controversy over transactions made over the Internet as compared to transactions not made over the Internet. With questions like this, global standards must be set in order to provide smooth international trades flows among countries. The Internet has dramatically shaped how individuals communicate with one another. E-commerce over the Internet has opened a wide array of communication channels between individuals all over the world. Individual-to-individual (i2i) techniques are being used as communication tools to form global teams and advisor/advisee relations. In regard to these relations, Olsen advocates that the Internet was originally used to eliminate people as intermediaries to sources and services. It was hoped that many processes would be automated using the Internet with such capabilities as being able to explore enormous digital libraries without the reference of a librarian or even to access medical information before ever having to meet a physician (Olsen). Gaining trust between individuals communicating over the Internet is one of the most important hot topics in this new e-commerce era. With the introduction of the Internet, how people trust each other is definitely a major topic of discussion. Forms of trust can occur depending on the type of communication used by individuals such as the difference between face-to-face communication to that of the telephone, email, text-chat, or videoconferencing. Each form of communication brings up its own unique way of gaining an individual’s trust for another. Research tells us that “trust needs touch” (Olsen). Interestingly enough, Olsen found that people who spend more time on the phone chatting with their coworkers showed greater trust than those who communicated to their coworkers using only faxes and email. However, it was found that people just using the telephone behave in a more self-serving, less-trusting way than they do in face-to-face meetings. In any case, how people trust each other over long distances is changing because of Internet technologies such as videoconferencing and the ability to have live text-chats. With these new emerging technologies, even contractual agreements can now be negotiated online with the use of digital signatures. The Internet has also allowed the new technology of digital signatures to be used in business over the Internet. A new act called the Electronic Signatures in Global and National Commerce Act has been imposed recently, which supports the use of electronic or digital signatures over the Internet for business transactions (Ceniceros). These new digital signatures will be legally equal to that of the traditional handwritten signatures. Using this new technology, it is expected to dramatically increase business transactions over the Internet. This new technology will come with a cost as it will be open to hacker attacks, viruses and other possible problems of digitally signed contracts (Nettie). Consultants are now helping with the problem and strong digital encryption programs will help combat potential security problems. With the use of new technologies such as digital signatures, e-commerce will prove to be a very valuable tool in the way business transactions will be handled, especially in the future. There are many questions as to what e-commerce exactly is. Electronic commerce is any transaction conducted over the Internet or through Internet access, comprising the sale, lease, license, offer or delivery of property, goods, services or information (Chi). It has been continuously increasing at a tremendous rate, which is why governments need to take action on how tax will be implemented to Internet transactions. In 1998, e-commerce business-to-business volume was at $14.9 billion, in 1999 it was at $31 billion and it is now predicted to increase to $177.7 billion by the year 2003. It has also been estimated that e-commerce will be six percent of all U.S. retail dollars by 2003 (Thibodeau). These staggering figures are not only a product of the United States, but have also been increasing on a global level. As Internet commerce rapidly secures its place in the world of business, so too is it stepping into the arena of international taxation. Transactions being conducted within a given jurisdiction are increasingly being conducted by e-commerce, which by nature may not easily be pinned down to a given location (Sanderson). Governments will now need to take proper action by implementing taxes on goods and services transacted over the Internet. If these government agencies fail to do so, they will lose out on potential profits due to the rising use of the Internet. Some of the problems posed by e-commerce include issues such as the residency of the taxpayer / organization and the location of the transaction. Concepts such as “permanent establishment,” ‘headquarters,” “residency,” and “place of performance of a service” are not easy to define in a world that unfolds in “virtual” terms and that is apparently free of identifiable frontiers (Gomez-Arnau). Gomez-Arnau explains how different jurisdictions will be called on to take a stand on a single transaction or activity and / or taxpayer; a situation prone to disagreement and one that may easily lead to double taxation or to an unjustifiable exemption from tax altogether. These jurisdictions in affect will need to establish a common ground for the legality of all forms of transactions to be accepted by all. Both supporters and opponents propose arguments for and against how e-commerce transactions should be handled. Transactions over the Internet should not be taxed based solely on the source of the product or by the residency of the person (James). The majority of supporters say all commercial transactions; including e-commerce should be treated equally to regular transactions. They also say that sales-tax exemption for e-commerce is likely to speed up a growing gap between those who have Internet access and those without Internet access (Price). The supporters, despite challenges in taxing jurisdictions, have found that software companies have developed programs for e-commerce that figures the sales tax of an Internet purchase based on destination of the goods purchased and applies the appropriate taxes to the buyer’s credit card (Chi). In essence they believe that the imposition of sales taxes is necessary in e-commerce to establish a level playing field for all consumers. In opposition to supporters, the opponents of taxing e-commerce say that the playing field is even. They say in most cases, the shipping and handling charges imposed by Internet retailers exceeds the amount of sales tax charged by local retailers (Chi). The opponents believe that e-commerce is not a threat to local businesses, because they can reach national and international markets through the Internet (Chi). They said by applying existing sales taxes to e-commerce would reduce the number of online buyers by twenty-five percent and spending by more than thirty percent. Opponents also say collection of local and state sales taxes would be simply too difficult a task to apply to Internet goods and services. As a result, opponents clearly feel that adding a tax to e-commerce would greatly deter the number of people who do business over the Internet. Over the past ten years e-commerce transactions have increased dramatically. In the following line graph entitled “Internet Generated Revenue 1996-2002,” the amount of United States dollars generated through Internet transactions in billions is shown over a period of time from the early 1990’s through what is predicted for the year 2002. In 1994, it is shown that only eight million dollars of revenue was generated over the Internet. From then until 1997 there was a slow yet steady increase in Internet revenue, which increased from eight million to twenty one billion dollars. This may seem like a large amount of money being transacted over the Internet over a few short years, but the amount of money generated has significantly jumped from what used to be seventy-three billion dollars in 1998 to what is currently seven hundred and seventeen billion dollars. This is an increase of six hundred and forty-four billion dollars over a three-year period. It is even predicted that Internet revenue will reach the one trillion two hundred thirty four million dollar mark in 2002. It is clear that Internet generated revenue is playing a more significant role in the economy today than it did in the past. In the future, businesses will be relying more on Internet based transactions, due to increasing societal demands for products and services. Because of this increasing Internet generated revenue, tax authorities are worried about the potential loss of tax revenues, which is why there needs to be a set standard of how the tax of transactions over the Internet are dealt with. In the following bar graph entitled ”US E-commerce 1998-2003,” the amount of United States dollars in billions is compared to business to business and business to consumer transactions in the late part of the twentieth century and into the early twenty first century. As shown, in the year 1998 business to business transactions over the Internet exceeded business to consumer transactions by over five times the amount. Currently in the year 2001, business- to-consumer transactions over the Internet have totaled approximately fifty two billion dollars. In contrast, business-to-business transactions have totaled about five hundred billion dollars. This figure is an astounding difference of ten times between the two types of transactions shown on the graph. The future predicts that by 2003 business to business transactions will out perform business-to-consumer transactions by a stunning thirteen times. As a result, businesses are depending on each other more and more when conducting transactions over the Internet. This figure is very important for tax authorities to watch out for, considering the types of products and services being transacted over the Internet. The graph following “US E-commerce 1998-2003”, is entitled “Online Language Populations (March, 2001)”. This pie graph illustrates how the Internet is composed and used by many different language populations. The graph clearly shows that English is the dominating form of language portrayed over the Internet, composing of about fifty percent. This a very interesting figure considering that out of the entire world, English seems to be by far the predominate language in use today. Chinese is the second largest online language population, which only consists of nine percent. This shows that users are conducting business through English based websites far more than any other language. Even though the Chinese language makes up a huge part of the Internet, the English language overwhelmingly dominates over the Chinese language by over four times. Some of the major countries in the world, when put together comprise of only about thirty five percent of their language use on the Internet. These countries include: Japan, Germany, Spain, Korea, France, Italy, Portugal, and Russia. This is a surprising statistic considering that these countries comprise of almost two-thirds of the world’s population and yet English seems to be the dominating choice of language. The last chart entitled “Global Internet Statistics (by language),” illustrates a variety of different languages and an array of Internet statistics pertaining to each of those languages. The statistics include such figures as: the number of Internet users, percentage of world population, predictions for 2003, total population, GDP, percentage of world economy, GDP per capita, and net hosts. According to the chart, there are slightly more Non-English Internet users than there are English Internet users. This fact is interesting since over fifty percent of the content on the Internet is in the English language. It estimated in 2003 that the amount of Non-English Internet users would more than double than its current standing. However, the amount of English Internet users will only increase another forty million. The English total population and GDP are substantially lower from that of Non-English speaking countries according to the chart. This again is surprising given the percentage of English seen on the Internet. In conclusion, the total number of English Internet users compared to Non-English Internet users is a major difference. Non-English speaking countries are already making e-commerce taxation rules and regulations where as English speaking countries, mainly in the United States, have not even begun to implement such laws. This is ironic because the Internet is so vastly English oriented as compared to the various other languages of the world. Corporations are conducting more and more business with each other on a global level and the Internet is increasingly becoming a primary resource for transactions between companies. Government agencies need to regulate these business-to-business transactions because they make up a huge sector of the economy. This is something that will affect everyone in the future including, different government entities, the way companies do business, and where consumers fall when it comes to this new “information superhighway”. Until a set standard is implemented there will continue to be debates on the taxation of global Internet transactions. In conclusion, the controversy of e-commerce and how it should be taxed is still in much debate today. While existing laws at least address how traditional routes for the transportation of goods and service are to be regulated, a legislative vacuum exists when it comes to the regulation of this new “information superhighway” of the 21st century. Internet commerce, while not currently a major force, will in all likelihood become a fixture of International commerce. Not only does Internet commerce occur on a national level but it has global implications as well, since the development of the Internet has no national boundaries. Many countries have been imposing different forms of legislation based on how they feel Internet transactions should be handled. There are supporters and opponents on both sides that feel a tax-based system for e-commerce would be either beneficial or unsuccessful. However, a careful review of the arguments of both sides leads to one important conclusion: There would be a potential loss of sales tax revenues for state and local governments. Policy makers and practitioners alike, must deal with the potential ramifications of Internet commerce. Otherwise, government will lose a potentially substantial source of revenue and lose control of its borders. In the end, questions as to why there is international controversy over transactions made over the Internet as compared to those not made over the Internet are still hard to determine. Therefore, a universal set of standards needs to be implemented so there will be no further controversy over future e-commerce transactions. Bibliography: Bibliography Ceniceros, Roberto. “Digital Signatures Mean Better Security Online.” Business Insurance [Chicago] Dec 2000. Chi, Keon S. “Power to Lay and Collect Taxes.” Spectrum [Lexington] Winter 2000. Golbert, Albert S. “Principles of International Taxation.” World Trade [Irvine] Aug 2000. Gomez-Arnau, Pilar Molina. “The Taxation of Internet Commerce in Spain.” The International Tax Journal [Greenvale] Fall 2000. James, Jan. “Taxing Times in Cyberspace.” New Zealand Management [Auckland] Nov 1999. Nettie, Roger. “Electronic Signatures Legislation Raises New Questions.” Credit Union Magazine [Madison] Oct 2000. Olson, Juidth S. “ I2I Trust in E-commerce.” Association for Computing Machinery [New York] Dec 2000. Price, Jean B. “Legislative Process for the new Millennium.” The National Public Accountant [Washington] Oct 2000. Sanderson, Christine. “EU Forges Ahead on E-commerce.” International Tax Review [London] 2000. Thibodeau, Patrick. “Europe Wants U.S. Firms to pay E-commerce Taxes.” Computerworld [Framingham] Aug 1999. Word Count: 2662
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