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Keeping the Matrix Tax Free

December 2007, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

When people talk about the Internet these days, they say things like, “It’s leveling the playing field.” And just last month I talked about how a dealer used the Internet to verify a customer’s Social Security Number. What’s amazing to me is that not everyone was so hip to the Internet earlier this decade.

The year was 2001. I was the managing editor for Mobile Electronics magazine, which writes to car audio shops across the country. One of the biggest issues I covered at that time was the Internet. Many of my readers and industry sources were predicting the demise of the brick-and-mortar business model. Industry conferences and tradeshows were littered with workshops on how to compete against e-commerce sites.

The problem was sales tax. E-commerce sites didn’t have to add sales tax to their customers’ online purchases, because the law said that states could only require businesses to collect taxes if they had a physical presence in the state. Understanding the disadvantage they were under, brick-and-mortar businesses saw the Internet tax ban’s renewal that year as their chance to level the playing field.

That’s why many in the industry I covered jumped on the bandwagon of state and local governments that wanted Congress to consider an access tax to offset lost sales tax revenue. See, states can still collect taxes on out-of-state purchases, but the law is difficult for taxpayers to understand and difficult for states to enforce. In some cases, enforcement can outweigh the amount that a state can collect.

In the end, the ban was extended three more years, and then extended another three in 2004. Last month,Congress extended the ban another seven years. However, the debates this time around didn’t have the fervor they did back in 2001. There was still some debate, but the war drums were a bit muffled this time around.

One reason is the Streamlined Sales Tax Project, which was created in 2000 to make the overall sales-tax system simpler for businesses. Since 2005, 22 states have been working together on the project. However, the group will need Congress’ backing in the form of a law before its efforts are ever realized.Bottom line: Don’t expect this to clear up anytime soon.

The other reason is businesses just aren’t afraid of the Internet like they once were. I can’t speak about how the Internet was impacting the automotive retail industry back in 2001, but I do know its positive effect on the business today. There are Web-based menus that have helped F&I providers get in front of dealerships nationwide. Even small-town dealers are reaching further than ever before,with the Internet allowing them to pull in customers from outside their city and state limits. I’m also hearing about a new Web portal that will allow buy-here-pay-here dealers to reach major lenders to sell their loan portfolios.

Even compliance has benefited from the Internet. In November we got word that the industry will have one year to comply with the last remaining components of the Fair and Accurate Credit Transaction Act of 2003 — one of which is the Red Flag guidelines. From what I hear, compliance will require a combination of dealer-created policies, legal counsel and … drum roll please … technology.

And just look at data collected by the National Automobile Dealers Association. Sixty-four percent of dealers it surveyed had completed a sale on the Internet, and 61 percent said they allow their customers to fill out finance forms online.

That’s right guys, the Matrix has you.

So why bring this up? Well, listen to how Phil Bond, chief executive of the Information Technology Association of America, summed up Congress’ seven-year extension:

“We applaud Congress for acting in time to stave off new unfair taxes. While we continue to fight for a permanent measure, for the next seven years at least, the private sector can invest in e-commerce and broadband deployment without fear of discrimination.”

Guys and gals, if you’re not hip to technology or the Internet, it’s high time you were. This was DealerTrack’s Mark O’Neil’s message at our F&I Conference and Expo. I hate repeating items from a previous issue, but his message was that while labor costs are going up, technology costs are going down. So, why aren’t you taking advantage?

Remember, this isn’t going to last forever. In fact, even though the recent ban spells out what Internet services would be off-limits for taxes (e-mails, including e-mails to customers, and instant messaging services that are provided independently or not packaged with Internet access), it did leave the door open for taxes on VOIP (Voice-Over-Internet Protocol) services. And as many of you know, once the government finds a new watering hole, there’s no quenching its thirst.

The government may not know what to do with the Internet, but it is keeping a semi-close eye on its growth. It knows the Internet will be a legitimate stream of revenue in the future. So get cracking, today’s tax-free Internet won’t last forever.

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