Taxation of Electronic Commerce

Golden Gate University, Braden School of Taxation – taught by David Hardesty

This course examines all of the federal, state, and international tax rules related to companies doing business using the Internet. Some of these issues we touch only lightly, and some we study in depth. The key topic areas are tax accounting for website development costs, including software, research, and content; accounting for the startup costs of new online companies; state sales and use tax, including the taxation of products and services sold online, and the tax compliance responsibilities of online sellers; state income tax liabilities of online companies doing business in multiple states; U.S. tax on foreign online companies selling to U.S. customers; foreign taxation of U.S. online companies selling to foreign customers; European value added tax on electronic commerce; formation of foreign online companies; transfer pricing and electronic commerce; and special accounting issues for online companies, including bartering, advance payments for online services, and cash and accrual accounting.

The objective of this course is to gain familiarity with all of the tax issues that are important to companies that do business through the Internet. After completing this course a professional should be able to identify and address most of the issues that are specific to an online company.

Prerequisites: TA 318, Advanced Federal Income Taxation, and TA 329, Tax Research and Decision Making

Text: David E. Hardesty, Electronic Commerce: Taxation and Planning – on Checkpoint – access to book is free with course

Course overview

Unit 1: Overview; Introduction to Electronic Commerce –
Overview of the course; introduction to the business of electronic commerce; terms used in electronic commerce; functional analysis of Internet websites.

Unit 2: Website Development Costs – Basic accounting rules for the costs associated with website development costs, focusing on those costs that are particular to websites; including software, research and experimentation costs, and intangible assets.

Unit 3: Website Development Costs – Part 2 – Accounting for Internet startup costs; research and experimentation credits for website development costs; special accounting issues related to website development costs.

Unit 4: Business acquisitions and dispositions – Account for intangibles acquired as part of the acquisition of a Web-based business.

Unit 5: State Sales and Use Tax – Seller Nexus – Identification of states in which Internet-based sellers have sales tax nexus (a seller with sales tax nexus in a state must collect that state’s sales and use tax).

Unit 6: State Sales and Use Tax – Taxability of Products and Services – Identification of products and services that are subject to sales and use tax when sold online.

Unit 7: State Income Tax – Seller Nexus – Identification of states in which Internet-based sellers have state income tax nexus (a seller with income tax nexus in a state must pay that state’s income tax).

Unit 8: State Income Tax – Allocation and Apportionment -Allocation and apportionment of state income for Internet-based sales; focus on special rules for drop shippers, and sellers of electronically delivered products and services.

Mid-term exam

Unit 9: International Taxation – Character and Source of Income – Introduction to international taxation of electronic commerce; determining the character and source of income from electronic commerce.

Unit 10: International Taxation – Outbound Transactions –
Learn the basic rules for determining whether a foreign country has the right to tax a U.S.-based online seller; and learn how much income may be subject to tax in those countries

Unit 11: International Taxation – Inbound Transactions –
Learn the basic rules for determining whether a foreign online seller is taxable in the United States; and learn how much income may be subject to U.S. tax

Unit 12: International Taxation – Foreign Corporations Owned by U.S. Persons – Learn the basic rules for U.S. taxation of foreign corporations owned by U.S. persons, including transfers to foreign corporations and the rules for controlled foreign corporations

Unit 13: -International Taxation – Value Added Tax –Transfer Pricing. Learn the basic rules for European value added tax, as they apply to Internet-based sellers, and the basics of transfer pricing as it relates to online sellers.

Final exam