Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes. - Benjamin Franklin, 1789
One of my first articles on AuctionBytes, "When a Gift is Not a Gift: How (not) to fill out a customs form," either directly led to or presaged eBay policy change on customs declarations. As you can imagine, I have since taken an interest in the gifting experience online (and it doesn't hurt that I'm turning 40 this month either).
eBay has Group Gifts, "The easiest way to organize a group gift and invite your friends to chip in!" which has been in beta for the last three years, Amazon recently announced Amazon Birthday Gift "A New Way to Make Gift Giving Simple, Social and Fun" and Facebook has been in the gift game since last September with Facebook Gifts where "you can give real gifts to your friends on Facebook using Gifts."
Then there are of course gift cards and companies such as Gyft, a "digital gift card platform that enables you to manage your gift cards. You can ditch the plastic and use your mobile device to store, send and redeem cards," a Google Ventures investment which has made much traction after it began accepting Bitcoin.
But gift giving and gift receiving isn't an easy endeavor in a land of taxes. When a giftee redeems a gift online it can be frustrating that they cannot redeem the full value of a gift as intended by giftor. For instance, a gift card is worth $100 but there is a 8% sales tax on an item to be purchased; this leaves the gift recipient with only $92 to redeem toward the value of the gift and another $8 to Uncle Sam.
What's more, if the Marketplace Fairness Act, aka Online Sales Tax Bill, is signed into law, there are more than "9,600 distinct state and local tax jurisdictions throughout the country" with different tax rates and because of the complexity of this bill, it would "require states to provide sellers with free, certified software to handle the collection and remittance of the taxes."
Google wants to take the legwork out of gifting and the United States Patent and Trademark Office last month granted Google a patent US8478653 B1 for "Tax-free gifting." Google describes the patent in the Abstract:
"A method includes receiving, from a computing device of a first party, a request to purchase a gift for a second party, identifying a location of the second party, determining whether a taxing authority of the second party's location imposes a tax on a purchase associated with redemption of the gift or a tax on the receipt of the gift, determining an amount of the tax imposed, generating a payment request for the gift including adding the amount of the tax to a cost of the gift, and transmitting the payment request to the computing device of the first party in response to the request to purchase the gift so that the first party has an option to pay the tax imposed based on the second party's location."
I do think the title of the patent is a bit of a misnomer in that what is called "tax-free" is actually a "tax flexible" system where a gift contains two parts, the finite value of a gift and an additional flexible payment mechanism that determines the sales tax implications and then adds this to value of the gift. However it is possible that this technology can facilitate a "tax free" transaction by recommending where (i.e. physical geographic location) the gift should be redeemed!
So getting back to my example above, the gift card is worth $100 with a 8% sales tax levy would automatically adjust the value of the gift card to $108.
The patent explains what type of taxes this technology can be used with:
"...Example taxes that the sender can pay can include combinations of state and local sales tax, value added tax (VAT), provincial sales tax (PST), and goods and services tax (GST), to name a few examples. In any one location, more than one tax can apply. For example, places in Massachusetts (or in other states) can impose combinations of a state sales tax, a county tax and a city tax. In some cases, a jurisdiction may have no tax at all, e.g., a state with no sales tax, or a duty-free store in an airport or near a border. In some cases, a web site or online merchant may not impose a sales tax unless the recipient is a resident of that state (e.g., "Massachusetts residents must add 6% sales tax"). Therefore, the system can determine if a tax is owed, and if so, allow for the sender to pay the amount of the tax..."
The location of the giftee is determined using the usual gang of technology suspects:
"...The location of the second party may be identified based on at least one of an Internet Protocol (IP) address of a computing device of the second party, a known location of the second party, an e-mail address of the second party, a mobile phone number of the second party, contact information of the second party, or a SIM card value of the computing device of the second party...GPS (Global Positioning System) receiver module may provide additional navigation- and location-related wireless data to device, which may be used as appropriate by applications running on device..."
Interestingly the patent specifically mentions currency. While there may be tax implications for the sender of the gift in addition to the recipient, the patent does not appear to address potential tax implications of the sender and this is probably beyond the scope of not only the patent but this blog post as well:
"...The gift may include digital content. For example, the gift may include one of a digital asset that is redeemable online, a gift certificate, or currency..."
"...In some implementations, gifting can include giving the gift recipient actual money for physical purchases at retail. In this case, the money provided could be increased to cover the amount of the tax. In some implementations, gifting can be made using electronic payment available to or through wallet functions or other payment functions on mobile devices, e.g., where recipients can swipe their mobile devices to pay for things at retail. In this case, the gifting can credit an amount to a recipient's device" (e.g., a smart phone, etc.), including the value of the gift and associated taxes...."
There is also a time and place "shifting" or better said "exacting" of tax obligation by jurisdiction. The patent further details this "Tivo of Taxing" technology:
"...In some implementations, instead of paying the tax at the time that the gift is purchased, the sender can pay the amount of the tax later on.....Paying the amount of the tax at redemption time can provide the advantage of allowing the recipient to use the gift token in any jurisdiction, including a jurisdiction other than the location at which the recipient lives. Delaying payment of the tax amount until redemption time can also provide the benefit of preventing the sender from paying the wrong amount, e.g., pre-paying tax for what turns out to be the wrong jurisdiction..."
While the Marketplace Fairness Act looms, netizens can be sure there is technology such as Google's Tax-Free Gifting patent just waiting to be unleashed online. Although we can always be certain of taxes, we can always be certain there will be creative yet legal ways around being taxed.
Note: In some instances, block diagram numbers have been removed for reader clarity.