Everyone has a different opinion about why they like (or maybe do not like) the Internet.  In my opinion, it is really one of the greatest resources or at least one of the most practical things ever invented. Let's face it. You can communicate with anyone in the world instantly for pennies. You can find information on a number of topics or subjects. And you can shop for just about anything from your living room, bedroom, or where-ever you have your computer. The most important benefit however for the small business owner however, is the tax benefit that can be obtained from a business that is set up properly using the Internet as their "store". In truth, this idea is really nothing new and in fact comes from the mail order industry. Let us start off by illustrating this with a hypothetical example.

We know that the company in Australia has to pay tax to the Australian government, because that is where the company is located. In fact, corporate income taxes are very high in Australia, and the company is already paying up to 60% in tax on profits.

What do you think they have to say when the American tax authority (the "IRS") says, "Listen guys, you need to pay income tax to the American government on any sales you make to US citizens"?  I can guarantee they would like to tell the IRS exactly what they may "put on the barbie", and it isn't shrimp.

There are a number of litmus tests that governments use for determining tax assessment on company sales.  The idea of "point of sale" is one, and other of course is the physical location of the company.  But suppose the company was Internet based or virtual?  Many mail order companies have in fact chosen to "go virtual" or to place their catalogs on line. The IRS tried to pull a fast one by stating "all Internet based commerce has a US government tax liability" because in theory all Internet traffic goes through US telephone lines at one point or another. Oh really?  Imagine what a German company had to say about that, considering their web page is in German and they don't even have any US based customers.

Let us review some other ideas and problems that the tax authorities have.Where does a telephone order take place? The living room where the customer is calling from, or on the other end of the phone, at the company?  Does this mean that every company in the world must pay corporate income tax on profits to "Uncle Sam" simply because they use the telephone (and there is a possibility that a telephone call can be ""switched" through the US)?  What about an order placed over the Internet?  If the previously mentioned statement by the IRS is not "applicable", than what is?  Is it a factor of where your web site is located, or your server?  Is it a factor of where your orders are processed?  Is it a factor of how you accept payment? Now that you see the problem for the tax authorities, you hopefully can also see the benefit for you.

The Internet offers the small businessman a possibility of using the current tax codes, offshore banking, and "cyberspace" all to his advantage.

If it is going to be said that the location of our web site or server is a factor, let us then host our web page or server in a location that could either care less, or offers a tax-free status by law.