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Internet sales, use tax reporting, S election, codes of conduct

State and Local tax questions

Q1. In the book "E-Business, Principles &Strategies for Accountants" the authors "Glover, Liddle & Prawett" state the following:

"The taxing of online purchases had been and continues to be a hotly debated issue. State and local governments contend that they are missing out on a great deal of potential tax revenue if e-businesses are not required to pay local taxes as are brick and mortar companies. However, e-business owners argue that the cost of tracking and collecting taxes for what could amount to virtually every local municipality in the country would far outweigh the taxes they would be able to collect.

Under a 1992 Supreme Court ruling, mail-order companies are not required to collect sales taxes in the states where they do not maintain a physical presence (i.e. stores, warehouses, etc.). To this point, e-business companies have benefited from this same ruling. However, the big issue may very well end up being, what is the meaning of "physical presence" for the e-business company located on a web server? This could be of the potential importance to accountants specializing in tax compliance and planning services. The United States Congress granted a temporary internet tax moratorium".

(a) Please elaborate on issues raised by the above quote and give examples of how jurisdictions have already reacted. Also, discuss the status of the temporary moratorium and its impact on New York State taxpayers.

(b) Utilize cases & rulings discussed in the text that have no relationship to the internet, explain how each case would apply in income tax and sales tax situation in today's cyberspace world.

NB. The text in part (b) is:"State and Local taxes, Jerome R. Hellerstein-Warren Gorham &Lamont, 3rd edition.

Q2 What is the current status of the effort to streamline sales and use tax reporting?
Q3 How is an S election made for NYS? For NJ? How does NYC deal with S Corporations?
Q4. What codes of conduct and ethical standards apply to tax professionals working in the areas of state and local taxes?

Give a detail explanation and list of sources for future reference.


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State and local tax

Issues raised by the above quote:

The issue raised in the quote is whether e-businesses should be taxed or not. The state and local government want these businesses to pay taxes whereas e-business owners find that it would be costly to collect and track taxes and these taxes would outweigh the taxes that the state and local government would be able to collect. The issues being debated are whether taxing the internet would stifle growth of e-business, whether taxes should be charged on access of the internet and the implications of America taxing the internet and also when an e-business should be said that it has enough presence in a particular locality (Griffin, 2001).

Examples of how jurisdictions have already reacted:

The state and local government believe that they will miss out on a great deal of potential tax revenue if e-businesses don't pay local taxes. Companies are also not required to collect taxes in areas that they do not maintain a physical presence. Jurisdiction states that E-businesses should become legally obligated to pay and collect the sales and use taxes imposed by that state. Satisfying these obligations though would be expensive from a competitive perspective and also from an administrative perspective since real economic prices must rise to account for tax imposition. The jurisdiction also believes that the income taxed by a particular state should be determined by the formula of apportionment that is based on the percent of the total property in the state, the percent of the total payroll in the state and the percent of the total sales in the state (Maguire & Noto, 2008).

The status of the temporary moratorium and its impact on the New York State tax payers:

The temporary moratorium on internet tax was for four years and barred the local and state governments from imposing any new taxes on the access of the internet or imposing any discriminatory or multiple taxes on the electronic business. It implied that internet access did not include telecommunications services except to the extent which these services are used, purchased or sold by the internet access provider to provide internet access. The tax on the internet access does not include the tax levied on the property levied, the net income, net worth and the capital stock. This tax on internet access only applies regardless of whether the tax is imposed on the buyer or the provider of the internet access. This also included a new ...

Solution Summary

Internet sales, use tax reporting, S election and the code of conduct is examined.