If consumers end up paying sales tax on their Internet and catalogue purchases, eONE Global LP will try to build a business by calculating the tax and managing the filings, said Garen K. Staglin, the First Data Corp. subsidiary's president and chief executive officer.
eONE Global, of Napa, Calif., is First Data's emerging payments business unit, and the Denver parent company has had high hopes that it would become as big as its other businesses, which include Western Union, card processing, and merchant processing. But so far, eONE, formed in 2000 in partnership with three other firms, has been struggling a bit to find its mission. Its 2002 revenues rose 98%, to $147 million, but accounted for only about 1% of First Data's revenues.
At first eONE Global was positioned as a company that would handle all sorts of Internet payments - business-to-business, person-to-person, business-to-government, and consumer-to-merchant. The foundation was First Data's CashTax technology for business-to-government payments.
A year later, when banks saw lots of promise for payments on wireless devices, First Data said that eONE Global would be at the center of that business. In late 2001 eONE bought the mobile commerce division of Brokat Technologies, a wireless vendor based in Stuttgart, Germany, and renamed it Encorus.
CashTax and Encorus are still among the six or so main businesses of eONE - others include Billingzone.com, which handles electronic invoice presentment and payment services, and SurePay, a business-to-consumer payments platform - but Mr. Staglin is busy talking up his company's tax payments businesses.
Among those is TaxWare, which sells the TaxSolver tax calculation and compliance software. The division has about 100 employees just to keep track of all the U.S. sales tax rates as well as foreign value-added tax rates, so its "massive database" is up-to-date, Mr. Staglin said.
TaxWare is not new but has new prospects, given the likelihood that Internet and catalogue purchases will be charged sales tax sooner or later, after years of a tax-free existence.
Today Internet and catalogue retailers are only required to charge sales tax on purchases made in states where they have physical operations. Some of the Internet's largest retailers have few such operations and have managed to run their businesses almost sales-tax-free. But state governments are out to get a portion of an estimated $10 billion a year in uncollected sales tax revenue.
"The thing that is interesting is that this does not require congressional legislation," Mr. Staglin said. "Each state can mandate this." He said it would take three to five years for them to do so.
Such mandates would probably make catalogue companies and Internet retailers charge all customers sales tax based on the rates where the customers live. Mr. Staglin said the mandates would be meant to "convert the point of nexus to the point of purchase."
Retailers dread the potential for what Mr. Staglin estimates to be 7,500 taxing jurisdictions.
Mark Nebergall, the president of the Software Finance and Tax Executives Council, a Washington advocacy group, said the "agitation is coming from state governments that want more money, and from brick-and-mortar retailers who sense a competitive disadvantage. Big companies are well capitalized and can scrape up money to invest" in managing the complexities of charging sales tax, he said, but "small companies just can't do that."
To help manage relations with state taxing authorities, TaxWare hired Charles Collins, who was an official with South Carolina's Department of Revenue for 32 years. TaxWare licenses its TaxSolver software for around $30,000 to $70,000 a year, depending on the number of locations a company serves. For small retailers, it will offer its tax calculations on a per-transaction basis.
Gwenn Bezard, a senior analyst with Celent Communications of New York, called TaxSolver "an old product that First Data is now marketing more aggressively." First Data acquired TaxWare, which was a 20-year-old private company, in 2001.
Mr. Bezard predicted that TaxWare will find an eager market among small to midsize businesses as states get more avid about collecting sales tax, but he said it is doubtful that the top dozen or so Internet retailers will outsource sales tax calculation. "Large merchants like Amazon have been used to relying on their own resources," he said. "Amazon does everything by itself, and Barnes & Noble has the resources to deal with such issues."
Meanwhile, Mr. Staglin said, it will probably take at least another year for eONE Global's cell phone payment processing business to start growing. Though early predictions about mobile payments had consumers using their mobile phones for everything from stock trading to ordering movie tickets charged to a phone bill, he said, right now most mobile phone action consists of downloading screen savers or unique ring tones from mobile phone providers.
Eventually, he said, "the emphasis will move into micropayments that are larger transactions than ring tones." Vending machines are one often-mentioned use for mobile purchases, but few merchants have shown much interest.
Germany and the United Kingdom are farther along in such plans than most, but even there Mr. Staglin does not see much mobile commerce before 2004, when some new pilots will begin.
