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BW: E-commerce
> (KPMG-PEAT-MARWICK-STUDY) American companies forecast huge growth in
> electronic commerce, but study uncovers concern about the impact of
> ambiguous state tax laws
>
> Business Editors
>
> NOTE: The following news release replaces
> BW1109, which was upheld by KPMG Peat Marwick.
> This revised version is for immediate release.
>
> NEW YORK--(BUSINESS WIRE)--June 27, 1996--An overwhelming nine
> out of ten financial executives at American companies currently
> engaged in buying and selling goods or services over the Internet
> caution that government must clarify the associated state and local
> tax implications if this new method of doing business is to reach
> its full potential, according to a study conducted on behalf of KPMG
> Peat Marwick LLP.
>
> "This study shows that electronic commerce is taking off," said
> Kent Johnson, National Partner-in-Charge of KPMG's Sales and
> Transactions Tax practice. "But it also reveals the frustrations of
> corporate America as it tries to cope with the murky environment
> created by applying old tax laws to new ways of doing business."
>
> Johnson continues: "Taxation of electronic commerce varies from
> state to state so determining what's taxable and who is responsible
> for paying those taxes becomes very complex."
>
> Survey respondents appear to agree. Almost seven out of ten
> respondents (67%) say that state and local tax laws governing
> electronic commerce are ambiguous, while more than half of those
> polled (51%) say that this ambiguity is already inhibiting their
> involvement in electronic commerce. Furthermore, 50% say they are
> "not very" or "not at all" familiar with the sales and transaction
> tax implications -- twice as many as those who say that they are
> "very" or "extremely" familiar with the tax issues. In fact, 20%
> of the financial executives surveyed do not know if their companies
> are even subject to sales and transactions taxes for the sale of
> products and services over the Internet.
>
> Johnson says that these statistics are particularly distressing
> because several states and municipalities have already begun taxing
> certain Internet services.
>
> "The huge growth potential of the Internet has undoubtedly
> caught the attention of state tax administrators who are eagerly
> looking for ways to apply existing tax laws and capture some of the
> revenue this business generates," said Michael H. Lippman,
> National Partner-in-Charge of KPMG's State and Local Tax Technical
> Services. "On the other hand, companies are saying that tax law, in
> its present form, cannot be applied to the new world of electronic
> commerce. They are calling for, at the least, a rewrite of the
> statutes and many contend that the states should give electronic
> commerce time to develop before imposing taxes."
>
> Companies' concerns about taxes, however, go beyond those
> related to the bottom line. More than half of those surveyed (53 %)
> think taxing electronic commerce has the potential to become a
> significant threat to privacy. Other specific areas of concern
> include: "the crafting of equitable laws from state to state and
> across industries" and "fear that state taxing authorities will take
> a very aggressive approach in determining whether a company is
> taxable in its state."
>
> Said Johnson of KPMG's Sales and Transaction Tax Practice: "Even
> though companies are saying they're concerned about the impact of
> state and local taxes on electronic commerce, very few have been
> proactive in working with taxing authorities to help ensure
> equitable rules." Nearly seven out of 10 companies (68%) say that
> they are "not very" or "not at all" involved with efforts to
> affect state and local tax policy, compared to only one in 10
> companies that are "very" or "extremely involved." However,
> exactly half of respondents (50%) claim they do intend to become
> involved in industry group discussions and debates in the future.
>
> Looking at taxation of electronic commerce from an international
> perspective, Jeff Stein, National Partner-in-Charge of KPMG's
> International Services, notes that the impact of ambiguous tax laws
> on electronic commerce is even more heightened as companies expand
> their sales and operations overseas.
>
> "Electronic commerce has the potential to fuel the engine for
> future growth of U.S. exports," notes Stein. "In fact, 83 percent
> of study participants believe that electronic commerce will be a
> major vehicle for U.S. exports."
>
> About one-third of companies believe that state and local taxes
> imposed on electronic commerce diminish their international
> competitiveness. Indeed, some companies even said that that they
> would consider moving their Internet activities offshore to escape
> state and local taxes in the future. But, KPMG cautions, such a
> move might not provide the anticipated tax haven because
> jurisdictions around the world are revenue-starved and will be just
> as aggressive as individual states in imposing taxes on companies
> engaged in electronic commerce.
>
> "There are a great deal of unknowns when it comes to electronic
> versus traditional commerce. We've been advising our clients to
> develop a multi-level, flexible approach that positions them for
> sudden changes in policies. At the same time we'll continue to work
> with regulators to help clarify how current tax laws can be fairly
> applied to business in the 21st century," said Lippman.
>
> Editor's note: The KPMG Study was executed by Clark, Martire &
> Bartolomeo, Inc. during June 1996. Results of the study will be
> available through KPMG's State and Local Tax Practice World Wide Web
> Site at HTTP:\WWW.US.KPMG.COM\SALT\ or by calling Patricia Neil,
> KPMG's director of State and Local Tax Marketing & Communications at
> 212/872-6570.
>
> For the purpose of this survey, electronic commerce is defined as
> buying or selling products or services over the Internet. The
> survey was conducted among 291 companies with gross revenues in
> excess of $50 million. They span four industry groups: publishing;
> software/business services/ advertising; communications; and
> manufacturing/distributing/retail.
>
> KPMG Peat Marwick LLP is the U.S. member firm of KPMG, The Global
> Leader among professional services firms. Worldwide, KPMG has more
> than 6,000 partners as well as 76,000 professionals servicing
> clients throughout 1,100 offices in 837 cities in 134 countries. In
> the U.S., KPMG partners and professionals deliver a wide range of
> value-added consulting, assurance and tax services in five markets:
> financial services; manufacturing, retailing and distribution;
> health care and life sciences; information, communications and
> entertainment; and public services.
>
> --30--bk/ny*
>
> CONTACT: Pat Neil
> KPMG Peat Marwick LLP
> 212/872-5506
> E-mail: [email protected]
> or
> Jackie Kaldon/Constantine Theodoropulos
> Shandwick USA
> 212-420-8100, ext. 213, 217
> 800-223-2121
> E-mail: [email protected]
>
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