Abstract:
A method that allows taxing jurisdictions to collect sales and/or use taxes from sales that are made via the internet and catalogs. The method also makes it easier for sellers to comply with the taxing jurisdiction&#39;s mandated seller administrative functions. The foregoing is accomplished by using an agent to perform the sales tax administration functions of a seller, relieving the seller of as much of the burden of compliance as possible.

Description:
CROSS REFERENCE TO RELATED APPLICATIONS 
   Reference is made to commonly assigned copending patent application Ser. No. 09/634,040, filed herewith entitled “A Method For Obtaining Secure Receipts For Sales and/or Use Taxes That Are Made Via The Internet and/or Catalog” in the name of Frederick W. Ryan, Jr. 
   FIELD OF THE INVENTION 
   This invention pertains to commercial transactions and, more particularly, to the collection of taxes for the sale and/or use of goods and/or services. 
   BACKGROUND OF THE INVENTION 
   From the dawn of history to the present day, governments have collected taxes to pay for the government&#39;s expenditures. One type of tax levied by governments is tax on the sale and/or use of goods and/or services. “Sales taxes” are usually imposed at a certain percent of the receipts from every retail sale of tangible personal property made in the taxing jurisdiction. “Use taxes” are usually imposed on the use of tangible personal property or taxable services within the taxing jurisdiction. 
   Currently, in the United States, some cities, states, counties, districts, and boroughs collect sales and/or uses taxes on commercial transactions that take place in their jurisdictions. In fact, there are approximately 6,000 jurisdictions in the United States collecting sales and/or use taxes. The sales and/or use taxes are at many different rates and apply to different types of goods and/or services. For instance, the sales tax on clothing may be exempt from taxation in one jurisdiction and subject to taxation in another jurisdiction at a rate of 6% for all clothing sales over $100.00. The sales tax may also be based upon the amount of the substance that is contained in the product, i.e., juices having different amounts of concentrates are taxed at different rates in some jurisdictions. Some entities, like charities, Indian tribes, etc. may be subject to taxation in one jurisdiction and not in another. 
   Generally, a jurisdiction has the right or power to tax a commercial transaction if the commercial transaction takes place within the taxing jurisdiction, i.e., goods subject to a sales tax are sold by a store that is physically located within the taxing jurisdiction. Goods subject to a use tax are goods that are used, consumed or stored in the taxing jurisdiction. The taxing jurisdictions usually have no difficulty collecting sales taxes on sales in their taxing jurisdiction made by merchants physically located in the taxing jurisdiction. A buyer is responsible for the payment of the tax if the seller does not collect the tax. However, the taxing jurisdictions usually find it difficult to collect taxes on the sale and/or use of goods and/or services that are made in a different jurisdiction and delivered and/or performed in the taxing jurisdiction. There has been a tremendous increase in the number of commercial transactions that are or may be subject to a sales and/or use tax that are taking place over the internet or from catalogs. The taxing jurisdictions are having difficulty collecting sales and/or use taxes that are made via the internet and catalogs. 
   Currently, sellers of goods and/or services have difficulty complying with the sales and/or use tax government mandated seller administrative functions. Sales tax administration functions include determination and calculation of the amount of tax due, collection of the tax, remittance of the tax, and filing reports of the tax to the appropriate governmental agency. The seller of the goods/and or services also has to maintain adequate records since the government may audit the seller. 
   In existing tax collection systems, a representative of a taxing jurisdiction must physically visit a seller in order to audit the seller. As a result, the seller, to some degree, can control the amount of information and content of information to which any given taxing jurisdiction has access. For example, a seller may not show the taxing jurisdiction all of the relevant information or the taxing jurisdiction may view information that it is not entitled to view. 
   SUMMARY OF THE INVENTION 
   Today, sellers are responsible for calculating taxes due based upon the location of the buyer, collecting taxes due from the buyer, accounting for taxes collected for the taxing jurisdiction, remitting taxes to the taxing jurisdiction for which they were collected, filing tax returns with each taxing jurisdiction for which taxes have been collected and supporting each taxing jurisdiction&#39;s audit of the buyer&#39;s records. 
   This invention overcomes the disadvantages of the prior art by providing a method that allows taxing jurisdictions to collect sales and/or use taxes on sales that are made via remote sales i.e., via the internet and/or catalogs, etc. The invention also makes it easier for sellers to comply with the taxing jurisdiction&#39;s mandated seller administrative functions. The foregoing is accomplished by using an agent to perform the sales tax administration functions of a seller, thereby relieving the seller of as much of the burden of compliance as possible. 
   Buyer and seller privacy are increased by segmenting seller and taxing jurisdiction data bases and by implementing a mechanism to provide buyers and sellers with a receipt of taxes paid. Sellers are provided with a mechanism to inspect the tax records maintained by the agent. The taxing jurisdictions are able to identify potentially fraudulent seller behavior, while limiting their access to named seller tax collection records. The invention also has the ability to provide tax remittance financing to sellers. 
   Currently, audits must be coordinated between the taxing jurisdiction performing the audit and the seller being audited. This invention eliminates the need for the above type of coordination, and it also enables the taxing jurisdictions to audit sellers without the seller&#39;s prior knowledge or consent. The sellers may be given some control over the taxing jurisdiction&#39;s unsupervised access into their records. The invention may give sellers varying degrees of control over the taxing jurisdiction&#39;s access to their records, by allowing the taxing jurisdictions access to seller data only after the seller has been able to review the data. Prior to the taxing jurisdiction&#39;s review of a seller&#39;s records, a message would be sent to the seller (e.g., via email or an email service with receipt confirmation such as Pitney Bowes iSend™ product). After the seller either grants permission to the taxing jurisdiction or a specified time period passes (e.g., seven days), the taxing jurisdiction would be allowed to view the detailed records. This would enable a seller to review the records and resolve any issues prior to a taxing jurisdiction&#39;s audit. Alternatively, a seller may be informed after a taxing jurisdiction reviewed seller&#39;s records. 
   The invention may also restrict the taxing jurisdiction&#39;s access to a seller&#39;s records to a limited number of times over a given period of time (e.g., three times every five years). 

   
     BRIEF DESCRIPTION OF THE DRAWINGS 
       FIG. 1  is a drawing of a Streamlined Sales and Use Tax System; and 
       FIG. 2  is a drawing showing the transaction flow of the system described in  FIG. 1 . 
   

   DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT 
   Referring now to the drawings in detail, and more particularly to  FIG. 1 , the reference character  11  represents a plurality of buyers who purchase goods and/or services from a plurality of sellers  12 . The remote sale may be via the internet and/or catalog, etc. The information exchanged between buyer  11  and seller  12  and seller  12  and buyer  11  may be: the particulars of the sales order and/or service; the location of the buyer; the cost of the sales order and/or service, including any sales or use tax that may be due; acceptance of the order by seller  12 , and confirmation of the order by buyer  11 . It will be obvious to one skilled in the art that buyer  11  and seller  12  may transmit other information, i.e., more specific location information, buyer exemption information, buyer identification number, etc. Seller  12  may transmit the location of buyer  11 , the items and/or services to be purchased by buyer  11 , the classification of the items and/or services to be purchased by buyer  11  and the cost of the items and/or services purchased by buyer  11  to certified automated system (CAS)  13 . Seller  12  receives from CAS  13  the amount of taxes due on the sale. CAS  13  has been certified by the taxing jurisdictions and must comply with the taxing jurisdiction&#39;s rules and regulations to maintain its certification. CAS  13  maintains a log of all sales and/or use tax transactions. CAS  13  transmits the aggregate tax records, i.e., a log of all sales and/or use tax transactions to certified service provider (CSP)  14 . CAS  13  calculates the tax and transmits the amount of taxes that are due to seller  12 . CSP  14  has been certified by the taxing jurisdictions and must comply with the taxing jurisdiction&#39;s rules and regulations to maintain its certification. 
   Periodically, seller  12  will transmit the monies it receives from buyer  11  to seller bank  15 . Bank  15  will periodically send the taxes that are due to CSP  14 . CSP  14  will set up tax record data bases  16   a ,  16   b  . . .  16   n  for each seller  12  in each taxing jurisdiction  17   a ,  17   b  . . .  17   n . CSP  14  will aggregate the payments that are due to taxing jurisdictions  17   a ,  17   b  . . .  17   n , prepare documentation, (tax returns) for taxing jurisdictions  17   a ,  17   b  . . .  17   n  submit documentation to taxing jurisdictions  17   a ,  17   b  . . .  17   n , submit tax revenues to jurisdictions  17   a ,  17   b  . . .  17   n  and support taxing jurisdictions  17   a ,  17   b , . . .  17   n  when they audit buyer  11 . CSP  14  can restrict taxing jurisdictions  17   a ,  17   b  . . .  17   n  access to data while still enabling complete disclosure of information in the support of tax audits. This is accomplished by separating the data received from the CAS  13  into several separate seller tax record data bases  16   a ,  16   b , . . .  16   n  and restricting access to those seller tax record data bases  16   a ,  16   b , . . .  16   n . Separate seller tax record data bases  16   a ,  16   b , . . .  16   n  exist for each taxing jurisdictions  17   a ,  17   b , . . .  17   n.    
   Taxing jurisdictions  17   a ,  17   b , . . .  17   n  will receive: all the transactions for which taxes are due the taxing jurisdictions, all transactions in which taxes would normally be due the taxing jurisdictions but for which an exemption has been claimed, all tax returns generated and filed by CSP  14  with taxing jurisdictions  17   a ,  17   b , . . .  17   n , and a log of all financial transactions with taxing jurisdictions  17   a ,  17   b , . . .  17   n . Taxing jurisdictions  17   a ,  17   b , . . .  17   n  are restricted from viewing each other&#39;s data bases. In addition, sellers stored in seller tax record data bases  16   a ,  16   b , . . .  16   n  may be stored with an alias (e.g., a buyer ID number) which is not normally exposed to taxing jurisdictions  17   a ,  17   b , . . .  17   n . Taxing jurisdictions  17   a ,  17   b , . . .  17   n  could audit seller tax record data bases  16   a ,  16   b , . . .  16   n  and tax return information based upon seller ID number. A seller&#39;s identity would be disclosed to a taxing jurisdiction  17   a ,  17   b , . . .  17   n  only if there were sufficient suspicion of fraud based upon audit data. The foregoing may also be done for buyers  11 . 
   A seller  12  may view the contents of his/her seller tax record data bases  16   a ,  16   b , . . .  16   n . A seller tax record data base  16   a ,  16   b , . . .  16   n  contains: a record of all transactions the seller has conducted, a record of all tax returns filed by CSP  14  on behalf of the seller  12 , a record of all financial transactions with the seller  12 , and a record of audits performed by taxing jurisdictions  17   a ,  17   b , . . .  17   n.    
   CAS  13  may be the sales tax software sold by Taxware International, Inc. of 27 Congress Street, Salem, Mass. 01970, or the sales tax software sold by VERTEX, INC., of 1041 Old Cassat Road, Berwyn, Pa. 19312, or other similar software and/or system. 
   CSP  14  is an agent certified by taxing jurisdictions  17   a ,  17   b  . . .  17   n . CSP  14 : determines the total amount of taxes due to each taxing jurisdiction; pays the taxes to taxing jurisdictions  17   a ,  17   b , . . .  17   n ; and files tax returns with taxing jurisdictions  17   a ,  17   b , . . .  17   n  in cooperation with CAS  13  on behalf of sellers  12 . CSP  14  also allows taxing jurisdictions  17   a ,  17   b , . . .  17   n  to audit sellers  12 . CSP  14  may be an automated computer system which performs data processing and financial transactions. 
     FIG. 2  is a drawing showing the transaction flow of the system described in  FIG. 1 . The transaction begins when buyer  11  requests to purchase goods and/or services from seller  12  via A. Then seller  12  collects buyer information, including tax data, i.e., location, exemption status, from buyer  11 . Seller  12  sends itemized purchase and buyer tax information to CAS  13  via secure connection B. Now CAS  13  calculates applicable taxes. At this point CAS  13  sends the result of the tax calculation to buyer  12  via C. If necessary, seller  12  verifies payment availability (e.g., credit card approval, line of credit check, etc.) from payment mechanism  17  via D. Then seller  12  presents a finalized statement to buyer  11  and requests confirmation of the sale via E. Then buyer  11  confirms the sale via F. Then seller  12  confirms the sale to CAS  13  via G. CAS  13  records all transactions conducted with seller  12  and stores the transactions as tax data. Seller  12  confirms the sale to payment mechanism  17  (credit card, line of credit, etc.) via H. Then funds for the total amount of the sale are transferred to seller bank  15  via  1 . CAS  13  will periodically send tax data to CSP  14  via a secure connection J. Based upon the tax data received from CAS  13 , CSP  14  aggregates the taxes collected by seller  12  into seller tax record data bases  16   a ,  16   b  . . .  16   n . CSP  14  periodically initiates a electronic funds transfer transaction to transfer taxes collected by seller  12  from seller account  15  to CSP account  25 , based upon data in tax record data bases  16   a ,  16   b , . . .  16   n . CSP  14  sends a statement of the tax collected to seller  12  via L. CSP  14  periodically sends tax returns and other information to taxing jurisdictions  17   a ,  17   b , . . .  17   n  via M and initiates electronic funds transactions transfer of funds from CSP account  25  to taxing jurisdictions  17   a ,  17   b ,  17   n  via M. 
   Taxing jurisdictions  17   a ,  17   b , . . .  17   n  may be able to audit seller tax record data bases  16   a ,  16   b , . . .  16   n  without the seller&#39;s prior knowledge or consent. Sellers  12  may be given some control over taxing jurisdictions  17   a ,  17   b  . . .  17   n  (unsupervised) access into the seller&#39;s records. For instance, taxing jurisdictions  17   a ,  17   b , . . .  17   n  may have access only to data bases  16   a ,  16   b , . . .  16   n  data and only after seller  12  has been able to review the data. Prior to taxing jurisdictions  17   a ,  17   b , . . .  17   n  review of a seller&#39;s tax record data bases  16   a ,  16   b , . . .  16   n , a message would be sent to seller  12  (e.g., via email or an email service with receipt confirmation such as Pitney Bowes iSend™ product). After seller  12  either grants permission to a taxing jurisdiction  17   a ,  17   b , . . .  17   n  or a specified time period passed (e.g., 7 days), a taxing jurisdiction  17   a ,  17   b , . . .  17   n  would be allowed to view a seller&#39;s tax record data bases  16   a ,  16   b , . . .  16   n . This would enable a seller  12  to review the seller&#39;s tax record data bases  16   a ,  16   b , . . .  16   n  and resolve any issues prior to a taxing jurisdictions  17   a ,  17   b , . . .  17   n  audit. Alternatively, a seller  12  may be informed after a taxing jurisdiction  17   a ,  17   b , . . .  17   n  reviewed the seller&#39;s tax record data base  16   a ,  16   b , . . .  16   n.    
   The invention may also restrict a taxing jurisdiction&#39;s  17   a ,  17   b , . . .  17   n  access to a seller&#39;s tax record data base  16   a ,  16   b , . . .  16   n  to a limited number of times over a given period of time (e.g., three times every five years). 
   Taxing jurisdictions  17   a ,  17   b , . . .  17   n  may identify potentially seller  12 &#39;s fraudulent behavior by having CSP  14  run various checks of the behavior of seller  12 . These checks would be accomplished by processing data in a seller&#39;s tax record data base  16   a ,  16   b  . . .  16   n  received from CAS  14 . The aforementioned checks would include: identifying a strange drop-off in the number of seller transactions in a tax record data base  16   a ,  16   b  . . .  16   n . For example, by looking at a history of seller  12  transactions over a significant period of time to determine seller trends and identify changes in the trends (e.g., there would be an expected drop-off in sales in January, which would not be considered potentially fraudulent behavior, whereas a drop in sales in December may be considered potentially fraudulent behavior). 
   CSP  14  also may compare the transaction volume, dollar volume and transaction types relative to other similar sellers (e.g., if most sellers  12  in a given seller class claim 15% exempt transactions and a single seller claims 70% exempt transactions potential fraud would be flagged). Identifying an inordinate number of cancelled transactions in sellers tax record data base  16   a ,  16   b , . . .  16   n  may indicate that a seller  12  is charging buyers  11  sales and/or use tax and then informing CAS  14  that buyers  11  are canceling the transaction. 
   It is desirable that certain “watermarks” be established for types of businesses that have the same frequency of cancelled sales, since businesses may profit by canceling a sale for which a seller has collected taxes from a buyer, and the seller has not returned the taxes collected for the sale to the buyer. CAS  14  may establish watermarks by identifying an inordinate amount of returned goods for a particular type of business. CAS  14  may also identify patterns that indicate a seller repeatedly requests taxes due from CAS  14  for a large sale with several items and modifies the sale by replacing the higher priced items with lower priced items, etc. 
   The above specification describes a new and improved method for taxing jurisdictions to collect sales and/or use taxes from internet and catalog sales. It is realized that the above description may indicate to those skilled in the art additional ways in which the principals of this invention may be used without departing from the spirit. Therefore, it is intended that this invention be limited only by the scope of the appended claims.