THE ONGOING political battle over whether and how to tax the Internet is fueling a cottage industry: Internet-based software that calculates and attaches to electronic orders all applicable sales tax.
Never mind that lawmakers have yet to figure out what sales tax -- if any -- applies to electronic-commerce goods sold by those businesses without a brick-and-mortar presence.
Companies such as Taxware, Vertex, and a handful of smaller companies -- which for decades have bundled tax processing gear for companies struggling to comply with complicated tax codes -- are seeing a spike in interest.
For Taxware, the political debate has been a direct hit. The company later this month will unveil its transaction tax server software that would back up a proposal by Gov. Michael Leavitt (R-Utah). The policy would prompt e-commerce businesses to voluntarily collect sales taxes on Internet purchases.
Many Internet companies right now do not collect and remit sales tax on items sold.
Instead, they enjoy an exemption that catalog companies claim because the Supreme Court has twice ruled that businesses do not have to cross state lines to collect taxes. For retail shops doing online sales, the case is a little clearer -- all sales tax applies.
Because the Internet is driving such huge portions of the economy and local governments are seeking to derive some revenue from that growth, many think e-commerce will not be forever sheltered from sales tax.
And Leavitt wants to use technology to urge e-commerce companies to begin forking over sales tax now.
"Technology is the only reason we could come up with this kind of proposal," said Ralph Tabor, associate legislative director at the National Association of Counties (NACo).
NACo is a Washington, D.C.-based group that, along with six other government groups, has backed the Leavitt proposal.
Under the proposal, states would ban together and delegate the responsibility for collecting and remitting taxes to a "trusted third party."
Taxware has been tapped to deliver the software that the third party would distribute to companies willing to participate, said Jon W. Abolins, director at Salem, Mass.-based Taxware's Tax Department.
Abolins said the company is tweaking its existing sales/use tax solution to meet state and local government needs. Current systems are outfitted with a database that allows calculations across 60,000 potential tax jurisdictions.
"We've seen our sales of e-commerce systems multiply incredibly since the issue has been out there and companies have become more aware," Abolins said.
However, major companies such as Dell, IBM, Sears, and Wal-Mart have long been Taxware customers.
But until now the number of e-vendors signed up with either Taxware or Vertex have been few.
Berwyn, Pa.-based Vertex is gearing up to release eQuantum, a tax-compliance solution for e-commerce companies.
Using Java Objects and Extensible Markup Language (XML) documents, eQuantum generates a tax quote to an online customer while creating an audit file database for tax reporting.
However, to those pushing lawmakers to simplify tax codes, technology is not the answer.
"I rank those e-commerce software packages among the top 10 vaporware products of 1999," said Mark Nebergall, president of the Software Finance and Tax Executives Council, a Washington, D.C.-based group that represents finance and tax executives of major software companies.
Taxware International Inc., in Salem, Mass., is at www.taxware.com. Vertex Inc., in Berwyn, Pa., is at www.vertexinc.com.
Sales tax facts
* Each year, there are about 600 sales rate changes as jurisdictions raise or cut taxes or levy new taxes.
* A Fortune 500 company files 1,000 or more sales tax returns per month.