Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party.

Common sense, logic, and fairness never did apply fully to the field of taxation but this is especially true of e-commerce transactions.

1. Canada Customs Welcomes You to Canada!

Since I`m located in Canada, let`s start here.

Canada has what you might call a national sales tax or a value added tax (VAT). This Goods and Services Tax (G.S.T.) of seven percent is applicable to many Canadian transactions.

Not only is it critical to determine whether a taxable sale was made in Canada or not, but also where in Canada. If it was made (or deemed to be made) in any of the Harmonized Sales Tax (H.S.T.) provinces (Nova Scotia, New Brunswick, and Newfoundland and Labrador), a higher, fifteen percent H.S.T. rate applies. This is because those provinces have allowed Canada to collect their provincial sales taxes for them.

As well, each province and territory has its own rules. Ontario charges eight percent retail sales tax on many typical Internet transactions whereas Alberta has no provincial sales tax.

Of course, this is only scatching the surface. This entire article is an over-simplification of a very complex subject. You will definitely need professional advice to help you through E-Commerce Taxland.

2. When Exports Aren`t Exports

In Canada, exports are "zero-rated" sales for G.S.T. purposes. This means that when you ship a product to someone outside Canada, you don`t charge G.S.T. Yet, you get to claim (or deduct from the G.S.T. collected by you) all the "input tax credits" (G.S.T. that you paid for business purposes) to make that export. The idea, I suppose, is to encourage exporting.

However, if you export products other than tangible, physical goods, beware! There are many pitfalls to watch out for.

As one example, consider digitized products that you might sell from your Canadian website, such as e-books, downloadable software, or subscriptions to content. You would be considered to be selling "intangible personal property". Unless your product is also considered "intellectual property" (such as software or e-books that you produced or have obtained the rights for), you will have to charge G.S.T. The reason why, according to the Canada Customs and Revenue Agency, is that it COULD be used inside Canada, even if it isn`t.

Say you sold a membership for accessing digitized content (from various sources) on your Canadian website to a customer in the United States. Since there are no restrictions as to where the intangible personal property may be used, and the property is not considered intellectual property (nor the provision of a service), the American customer is subject to G.S.T., even if he never comes to Canada.

Strangely, the same logic doesn`t apply when an American buys a regular book (or a car) which he COULD bring into Canada with him and use here. It is true that it is easier for Canada to assess such items at the border than in cyberspace, but I know of no cases of Americans being taxed on the books or cars they bring with them when they come to live in Canada for about half the year.

As a Canadian registrant, one way you might legally avoid this silly March Hare is to explicitly state on your website and invoice that use of such intangible personal property in Canada is prohibited (or requires an additional fee and the payment of G.S.T.).

3. When Imports Aren`t Imports

Goods shipped to Canada are subject to G.S.T. on importation. Such tax is often assessed at the border. But what if you are a Canadian registered for G.S.T., selling to a Canadian customer but your supplier is in a foreign country?

Pretend that your Canadian customer has bought a book from you from your Canadian website. Your drop ship supplier is located in the United States and is registered for G.S.T. You fax your order to the American company, and they, in turn, ship the book for you (complete with Customs Declaration and their G.S.T. Business Number).

Since they paid the G.S.T., you wouldn`t think you would have to charge it again, would you? "Wrong!", smiles the Cheshire cat. Since you are a registrant located in Canada, you are required to charge and remit the G.S.T.

But you are entitled to input tax credits, aren`t you? In many cases, the answer is "No".

It may be very difficult for you to satisfy the documentary and other technical requirements. As an example, it is not uncommon for American suppliers to absolutely refuse to give an invoice breaking down the G.S.T. or to allow you to be the Importer of Record. This complicates their life unnecessarily and they just don`t need the aggravation.

There are relieving tax provisions covering drop shipping, sales agencies, and other situations. In many cases, unfortunately, the most practical solution is to allow the tax to be paid twice.

4. When You`re Subject to Tax Where You`re Not Subject to Tax

It makes sense that countries impose a tax on sales and income made in their own jurisdiction. But does it make sense for Germany to tax sales made in the United States?

In effect, starting July 1, 2003, the European Union has done just that by imposing an online sales tax.

This means that if someone from England buys an e-book from someone in the United States, the American should submit this tax. Of course, If the sale was to someone in Germany, the tax rate would be different.

The rationale behind this follows: Since countries can`t collect sales tax on Internet transactions at their borders, the only way they can collect it (other than a self-assessment system) is with an online sales tax. Further, it is claimed that businesses in the European Union suffer a major competitive disadvantage because they have to collect Value Added Tax (VAT) but others don`t.

I know what they mean. Welcome to the club!

J. Stephen Pope, President of Pope Consulting Inc., http://www.popeconsultinginc.com/ has been helping clients to earn maximum business profits for over twenty years.

For valuable Work at Home Small Business Ideas, visit http://www.yenommarketinginc.com/

---

Rearrange Your Affairs For Maximum Tax Savings

One way to maximize your business profits is by reducing... Read More

Identity Theft ? Impacting Your Taxes?

If your identity is stolen, your finances can quickly become... Read More

Tax Time Tune Up

Excerpted from the new book, "How to Do Space Age... Read More

Tax Tips for Home-Based Business Owners

As tax time approaches, many home-based business owners begin completing... Read More

Rental Property Tax Deductions

Own residential rental properties? This article discusses how income from... Read More

Income Tax Returns Your Accountant Should Not File

You've been feeling uneasy (perhaps even guilty) because you've failed... Read More

Seven Key Tax Deductions for the Self Employed

As a sole proprietor, it's wise to familiarize yourself with... Read More

Complaince of Tax Return in Electronic Commerce Taxation

Emerging Legal issues of Tax compliance of e-business Self-assessment system... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Corporations Failing To Claim AMT Exemption Overpay Taxes By $11,000

Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More

Tax Tips to Save Money on Taxes - Get the Corporate Kick and Save Loads of Money

Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More

How to Check the Status of Your Tax Refund Online

So, you were pleasantly surprised to learn that you are... Read More

What is a Federal Tax Lien?

A Federal Tax Lien (FTL) is a legal instrument that... Read More

Slash Tax when Buying a Business

When buying a business, how the "purchase price" is made... Read More

Small Business Tax Deductions for Year End 2004

As a small business owner, it's wise to familiarize yourself... Read More

IRS Statute of Limitations: Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt... Read More

Tax Trap #2 -- Double Taxation: Isnt Once Enough?

Have you been thinking about incorporating your small business or... Read More

Business Tax Deductions

As we enter mid-March, taxpayers begin to become very interested... Read More

How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share

How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More

Tax Reduction Tips

In the rush to get tax returns prepared and filed... Read More

Taxation of Forgiven Debt: The 1099C & You

Often people fall on hard times and stop paying on... Read More

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are... Read More

Some Folks Pay A Lot Less Tax Than Others On Very Same Income?Did You Pay Too Much Tax In 2004?

Someone once remarked, "Next to being shot at and missed,... Read More

Amending Procedural Laws for Collection of E-taxation

The electronic transaction ordinance defines the certificated copies in which... Read More

Hurricane Katrina ? How To Use Your Business Loss To Get A Refund on 2004 Taxes

With the massive losses caused by Katrina, the economy of... Read More

Early Distributions From Retirement Plans

An early distribution from an Individual Retirement Arrangement (IRA) or... Read More

Tax Tips - Which Tax Form Is Right For Me?

IRS Tax forms can be confusing.Am I a 1099 or... Read More

E-commerce Taxation

The means and types of businesses have transformed with advent... Read More

Tax Jokes and Quotes

Do you realize that some tax forms ask you to... Read More

IRS Certifies 2006 Toyota Hybrid for Clean Fuel Deduction

The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More

Know A Tax Cheat? Get Paid To Tell The IRS

According to the IRS, taxpayers underpay their taxes by some... Read More

Paying Workers ? What Can You Write-Off?

As your business grows, you are going to need help.... Read More

Truly Bizarre Taxes: The Tax on Illegal Drugs

One can never underestimate the enthusiasm that politicians have for... Read More