• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

INTERNET TAXATION

Extracts from this document...

Introduction

INTERNET TAXATION June 20, 2007 IS535 Managerial Applications of Information Technology Submitted by Haci Fehmi Ozgun Opal Shelton Background to the Problem Turquoise Incorporated is a web-based startup that is a reseller of electronics. The company is a pure click commerce site. It acts as an intermediary between larger electronic companies and reatail consumer. The company uses a drop shipping method of delivery and orders are taken via their website. They also have a presence on Amazon.com Marketplace and Ebay.com The Company has had moderate success and is thinking of investing more capital into the business and acquiring warehousing facilities. The company has proposed California as a probable location for its new warehouse. However, with the proposed changes to Internet taxation the company is hesitant to pump capital into a business that may lose its competitive advantage to Traditional Brick and mortar business that would severely compromise Turquoise's future profitability. The Board of Directors has retained the services of our group to analyze the impact that the proposed Internet taxation law will have on E-Commerce and its potential impact on the future of the business. History of Internet Taxation The Internet taxation issues stems primarily from the fact that the Internet was not designed for E-Business. The Internet was designed in part to provide a communications network that would work even if some of the sites were destroyed by nuclear attack. Initially primarily academics, engineers, scientists, and librarians used the Internet. ...read more.

Middle

Several factors have been cited that show that this will have an adverse impact on E-Businesses. 1. Consumers use E-Commerce because of the absence of a Sales Tax and if the tax is introduced, the consumer will revert to Brick and Mortar stores. . Hal R. Varian1Dean, School of Information Systems and ManagementUniversity of California at Berkeley explains Economists argue that taxing business purchases is not wise since these taxes end up being passed along to consumers in the form of higher prices, which distorts both consumer purchases and business structure. Suppose that firm A sells a product to firm B for $1 plus a 5 percent sales tax. Firm B then sells the same product to a consumer for $2 plus another 5 percent sales tax. If these taxes are fully passed along to the consumer, he or she ends up paying 15 cents tax on a $2 purchase. The increase in the final tax paid by the consumer due to the taxation of business inputs is known as "pyramiding" or "cascading." This pyramiding of taxes will cause consumers to consume less of the good than they would have otherwise and may cause firms to change their behavior simply to reduce their tax burden. For example, firms may choose to vertically integrate solely to avoid taxation on purchases of intermediate products.(Varian, 2000) 2. An Internet retailer, or any direct marketer, would have to file dozens of sales-tax returns monthly and could be audited any time. ...read more.

Conclusion

consumer would only consider the after-tax price and would be indifferent to the source of its increase.(Smart Economist, 2006) The conclusion is that "On the whole the results suggest that while online retailing owes much of its success to tax avoidance motives, there are still certain dimensions in which online and offline retailers may compete" (Smart Economist, 2006) Because of such a challenge, nowadays most of the vertical price comparison sites has a handy option to calculate the "bottomline price" of the item based on the consumer's ZIP code. www.pricegrabber.com is one of the typical examples of this application. With the information gleaned from our analysis, we advise the company to inject the capital into the business. Taxation gives a competitive advantage for highly price sensitive items as well as high price tag. Otherwise shipping cost may neutralize the taxation advantage. It makes more sense to use other advantages that internet can provide. One example of this can be focusing on "niche products". Niche products target a very narrow consumer segment. Because of that it's not feasible for a brick-and-mortar business to offes such products. Since it's very easy to reach a very wide array of consumer segments via internet; such products and services offer a great opportinuity for click-and-mortar businesses. Regarding the drop shipping opportinuities In dropshipping, since we don't actually stock the products, we have limited control over inventory management, product availability, order fulfillment, shipping processes, etc. Therefore success of the business heavily relies on the reliability of the drop shipping company. It's imperative that working with reputable and reliable drop shipping companies are vital for the success of the business. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Internet section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Internet essays

  1. Case Study for Wingspanbank.com.

    Industry Driving Force The online financial service industry is a technology driven industry. The development of the Internet technology determines the processing of online banking service and the speed of access and design of the site as well as the convenience and simplicity that a site can provide to its visitors.

  2. An explanation of the impact of availability of electronic information on individuals and society.

    The Impact on those who do not have or want access to electronic information With a major impact on the 43% of homes which do not have access to this electronic information via internet access. The two main groups who do not have access to the internet are low income families and the elderly with only 28% having internet access.

  1. In assessing the competitive position of a large online trader, we would use the ...

    The only thing that the website wants their customers to do is clicking purchasing button. Not only above three key elements which were the key success factors of online retail business, security and reliability were also the important factors that will prove the success of the online business.

  2. This essay critically discusses the social issue of homelessness and its impact on young ...

    When New Labour came to power it renewed the focus on rough sleeping and set a target to reduce rough sleeping to by two thirds over the following three years. Figures from the Home Office for 2006 indicate that this level has been achieved (home office website, 2007).

  1. E-commerce Technology

    Financial Times, May 11, 2000, (p. III) * All figures estimated except for 1998-2002. A study at the Centre for Research in Electronic Commerce at the University of Texas in Austin, that included information on worldwide Internet-based revenues of U.S.-based companies, shows that the Internet Economy is growing rapidly.

  2. What is e-commerce used for?

    smoothannice.com will have to take longer times to deliver the products as they would then have to order some new stock, then put it into the warehouse then deliver it. If they had a larger warehouse then they would have sufficient amount stock to deal with the high amount of

  1. Online dating services - review

    It is banking on its existing position as the top website on the Internet15 and its large pool of users of its other tools to provide a large enough pool of users. Lavalife also has its own proprietary system and is banking on its unique features and credit based rather than subscription based system.

  2. Design and create a website for a company of my choice. I have decided ...

    This will be beneficial to the customers as they will have some sort of knowledge about the company they are buying from. A guestbook - where people can enter register with the company and sign into their account so that when you reserve or order a dress you will not need to enter any details in.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work