Sales and Use Taxes - Sales on the Internet

by E.Northrop

February 15, 1999 -- Sales and use tax jurisdictions around the country are imposing exemptions on transactions such as website construction and internet access fees. Most jurisdictions have not jumped on a similar bandwagon that may endanger
current revenue sources - exempting sales of tangible personal property that transact through the internet. Department stores and other retail outlets are losing business to this new kind of mail order sales.

Electronic sales are rising geometrically from year to year and are projected to be between $1 trillion and $2 trillion by the year 2002. On average, a states relies on sales tax for 49% of their revenue. States fear that as internet sales increase, their revenue from sales taxes will decrease. The general concensus in that states will have to work on the difficult task of developing new sales tax laws that apply to internet sales, and be able to write regulations that will be definitive. Don't hold your breath on this one however. The states do not have a good track record on writing regs that take into account technological changes.

ERS Beware

by E.Northrop

February 15, 1999 -- Evaluated Receipts Settlement (ERS) is a method of paying for goods and services that can be done without a paper invoice. It allows a purchaser to pay for goods based upon a comparison of actual receipts to purchase
order data that has been previously fed into a data base.

On the surface, and even well below the surface, this is a great idea for some types of purchases. A word of caution is in order however. My advice is to make sure that your people responsible for sales and use tax administration are on board in the early stages as you implement this conversion to the paperless environment. The major problem in this area is the audit trail that is necessary to determine what has been purchased, to whom has it been delivered, and how the purchase is used. You may be
saying "all this info isn't on a paper invoice" True, but my response is:

Do you file purchase order copies with your invoices?
Do you file shipping documents with your invoices?

A word to the wise. Safeguard your internal auditing ability and external audit capability by making sure that appropriate descriptions and contacts are included in the data that will be input into the electronic file. NYS auditors will expect that you can support any exemptions that you claim on a purchase of tangible personal property or service that is considered
taxable. There is a current NYS team working on this audit problem.