The Internet attacks tax borders.Last month, the Journal reported on the difficulties states are facing in taxing transactions over the Internet Internet
Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . (See "Business Group Addresses On-line Nexus," JofA, Mar. 97, page 21, for details.) Of course, the Internet gives no more respect to international boundaries than to state boundaries Noun 1. state boundary - the boundary between two states
border, borderline, boundary line, delimitation, mete - a line that indicates a boundary , and the U.S. Treasury U.S. Treasury
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Department is beginning to address the same Internet taxation issues as the states, from a global perspective.
In November 1996, the Treasury released a discussion paper, Selected Tax Policy Implications of Global Electronic Commerce, which recognizes the radical changes the Internet is precipitating pre·cip·i·tate
v. pre·cip·i·tat·ed, pre·cip·i·tat·ing, pre·cip·i·tates
1. To throw from or as if from a great height; hurl downward: in international commerce. "Most of our concepts of international taxation are based on geographic principles," Bruce Bruce, Scottish royal family descended from an 11th-century Norman duke, Robert de Brus. He aided William I in his conquest of England (1066) and was given lands in England. Cohen cohen
(Hebrew: “priest”) Jewish priest descended from Zadok (a descendant of Aaron), priest at the First Temple of Jerusalem. The biblical priesthood was hereditary and male. , an attorney adviser in the Treasury's Office of the International Tax Counsel, told the Journal. "But electronic commerce is beginning to render some of those traditional geographic considerations irrelevant."
Cohen said that a main goal of the Treasury was neutrality--companies doing business over the Internet should not pay more or less tax than their competitors doing business through traditional venues. However, because the Internet makes it difficult to trace the source of a transaction, there may be a move to more residence-based taxation. "Even with the Internet, you can determine where a company is incorporated," said Cohen, noting that U.S. tax treaties with other countries favor residence-based taxation. The paper says that, "almost all taxpayers are resident somewhere...and, at least under U.S. law, all corporations must be established under the laws of a given jurisdiction."
The paper addresses other Internet commerce issues as well: Regulators will have to consider the classification of income arising from digitized information, such as a computer program that is e-mailed to a customer rather than conventionally mailed on a disk. Also, electronic money, a concept still under development, can create new forms of money essentially like cash and thus difficult to trace.
Ongoing policy creation
The Treasury emphasizes that the paper is mainly to elicit e·lic·it
tr.v. e·lic·it·ed, e·lic·it·ing, e·lic·its
a. To bring or draw out (something latent); educe.
b. To arrive at (a truth, for example) by logic.
2. views and is not a statement of policy of the U.S. government or any of its departments. Cohen said that ultimately the Treasury is likely to issue some regulations or other guidance, but it was unlikely to address all these issues at one time. He also said that eventually there may be some legislation, although there were no current proposals. The Treasury is inviting comments, meanwhile, which should be sent to Joseph H. Guttentag, International Tax Counsel, Department of the Treasury, 1500 Pennsylvania Avenue Pennsylvania Avenue is a street in Washington, D.C. joining the White House and the United States Capitol. Called "America's Main Street," it is the location of official parades and processions, as well as protest marches and civilian protests. , NW, Washington, D.C. 20220, or e-mailed to Taxfirstname.lastname@example.org, with the subject line "technology issues." The 18,000-word paper may be downloaded from the Treasury Web site at http://www.ustreas.gov/treasury/tax/internet.html. It also was reprinted by the Bureau of National Affairs BNA (The Bureau of National Affairs, Inc.) is a Washington, D.C.-based publisher of news and information on legislation, regulations, and court decisions for professionals in business and government. It is the oldest wholly employee-owned company in the United States. on November 22, 1996.