FC: A programmer's view of Internet taxes

[Declan McCullagh <declan () well com>]

[Philip Greenspun runs one of my favorite web sites. He is a photographer,
programmer, and author. Here's what he has to say about taxes on online
purchases. --DBM]

**********

http://photo.net/wtr/thebook/ecommerce.html

Sales Tax

Our Fortune 500 client has "nexus" in all 50 states, meaning that in each
state they are considered to be "engaged in business" and therefore required
by law to collect sales tax. Note that they weren't actually selling goods
direct-to-consumer nationwide, but had warehouses and salespeople in
every state. 

   This doesn't sound so bad, does it? We just need an Oracle table with
50 rows, each one containing the tax rate for a particular state. Actually it
turns out that there are about 7,000 taxing jurisdictions in the United States
and 17,000 different tax rates. Okay, that's no problem either. Oracle can
handle a 17,000-row table quite easily. We can buy the data for $3,000 a
year from http://www.salestax.com. A few straightforward Tcl scripts and
SQL queries and we can compute the amount of tax to collect based on the
zip code of the shipping address. 

   So what's the problem? 

   We've collected the tax. We haven't paid the tax. We now need to write
checks and fill out
forms for those 7,000 taxing jurisdictions nationwide. Most states let you
remit your local jurisdiction
taxes to the state along with a schedule and then the state revenue folks
distribute the appropriate
amounts periodically to local governments. Still, assuming that our sales
are initially light, we could
be writing one or two checks and filling out one or two forms for every
product that we sell. We will
be hiring a big staff of people to sit in front of a forms CD-ROM from
http://www.salestax.com or a
more automated software package from http://www.corptax.com,
http://www.taxware.com, or
http://www.vertexinc.com. 

   The interesting thing to note here is that big companies that have
always sold wholesale may
initially see the Internet as a great opportunity to cut through layers and
get directly to the consumer.
Yet the cost of building a sales tax compliance department may wipe out
many years of profits from
Internet sales. 



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