California Among Most Cybertax Friendly States, Says Deloitte & Touche/ITAA Publication; Top Cybertax Issues Facing Companies Identified.

LOS ANGELES--(BUSINESS WIRE)--March 16, 1999--California leads the country in being one of the most cybertax friendly states, according to Taxation of Cyberspace, a new book jointly published by Deloitte & Touche LLP and the Information Technology Association of America (ITAA). This means that for many transactions, businesses and consumers alike can buy and sell on the Internet and pay a fraction of the tax in California that they would pay in other states.

"As California imposes no sales tax on downloaded programs where the original tape or disc is retained by the seller, a consumer downloading a compact disc, for example, can save on sales tax, shipping costs, and shopping time," said Jack Cronin, national director, state and local tax services, for Deloitte & Touche. "Similarly, a company interested in buying software in California can save potentially thousands of dollars of sales tax by purchasing and downloading the software via the Internet."

The California State Government endorses the Internet Tax Freedom Act (passed 10/98) which put a three-year moratorium on new taxes on Internet access fees and on new state taxes that are discriminatory or result in multiple taxation. California has gone beyond the requirements of the Act by amending its sales and use tax regulations, ensuring that taxable nexus will not be created just because a server resides within the state. California law also prevents the extension of tax authority to Internet specific taxes, while many other states are applying sales tax to Internet access charges, information provided to subscribers by Internet content providers/sellers, and fees charged by Internet companies for building and maintaining Web sites.

"With business-to-business transactions alone expected to exceed $300 billion on the Internet by 2002, the tax revenue potential is vast, so it's critical that businesses that market and sell on the Web understand all of the tax implications," noted Cronin, who is based in Los Angeles. He identified the following cybertax issues that companies today should take notice of:

-- Being aware of administrative burden of cybertax liabilities.

There are 30,000 taxing jurisdictions that can require companies

to file up to 6,500 different tax forms in the United States 

alone.

-- Understanding nexus. Where a company's e-commerce server resides

or where its fulfillment company is based determines nexus. To

avoid being ensnared in unnecessary tax liabilities, companies

may consider establishing operations in cybertax-friendly states.

-- Making smart Web sites extra smart. Companies are advised to

build tax information and tax collection fields into their smart

Web sites (those that send information back and forth on

inventory availability, etc.), but not to activate them yet. By

thinking ahead, companies will be ready to use those fields if

and when the time comes and thus save possibly millions in

redesign costs.

-- Looking ahead at global plans. Companies thinking about going

global should consider planning now for their international tax

liabilities, including customs, duties, and other taxes, plus the

costs to manage the legal and financial requirements. The bottom

line should be if international revenues justify the potential

tax expense.

-- Preparing for taxing tomorrow. The long-term cybertax plans

should be investigated for the state where a company's server and

business partners are located. As the Internet Tax Freedom Act

will eventually expire, companies should be aware of current

cybertax lawsuits and their outcomes, which will affect

tomorrow's laws.

The Information Technology Association (ITAA) is the leading trade association of the U.S. information technology industry. ITAA's 11,000 direct and affiliated member companies create and market products and information services, meetings, and activities that enhance an information technology firm's ability to remain competitive in the marketplace. For more information on Taxation of Cyberspace, including purchasing information, contact the ITAA at www.itaa.org.

Deloitte & Touche, one of the nation's leading professional services firms, provides assurance and advisory, tax, and management consulting services through 23,000 people in more than 100 U.S. cities. Deloitte & Touche is part of Deloitte Touche Tohmatsu, a global leader in professional services with more than 82,000 people in over 130 countries. Deloitte & Touche refers to Deloitte & Touche LLP, Deloitte Consulting LLC, and related entities. For additional information, please visit Deloitte & Touche's Web site at www.us.deloitte.com.