Technology and Electronic Commerce The Possibilities and the Challenges. Areas of Importance to Keep in Mind

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1 Technology and Electronic Commerce The Possibilities and the Challenges FTA Technology Conference Monday, August 12, 2002 Areas of Importance to Keep in Mind Tax Compliance Ability to collect revenue more efficiently & effectively Building collaborative relationships with solution providers Virtual products are being sold business to consumer (B to C) over the internet 1

2 The Business of Tax Compliance Registration TAX COMPLIANCE INFORMATION Audit Assessment BUSINESS Submission Calculation Collection Payment Understanding The Forces That Shape Tax Technology Threats Competition The Press Globalization Uncertainty Business Risk Complexity Taxing Authorities New Business Models Politics Customers Protectionism Confusion Class Action Lawsuits Business Imperatives Amazon.com 2

3 Vertex Core Competency Technology Tax Presentation Outline Technology evolution Current state A glimpse of the future Barriers and opportunities Standards Internet Questions and follow-up 3

4 IBM Technology Evolution Better Faster More Reliable Today Internet (.net/java) Client/Server (ERP) PCs / Relational Databases(VB/Access) Mainframe (COBOL) 1950 s Manual (rate catalogs) Internet Transaction Internet Buyers Sellers 4

5 Internet Protocol Address (IP) Unique Personal Identification Number Each Computer is Assigned an IP address Generally, users who have fixed Internet connections have fixed IP addresses cable modems private companies Dial-up Internet providers usually give addresses dynamically from a pool when a user dials in to connect (such as a pool of 100 IP addresses per 800 subscribers). How the Internet Works Using ISP howstuffworks.com 5

6 Network Map Impacts (1) Corporations have to radically shift the way they conduct business to take advantage of latest technology trends (2) All technologies are still supported in tax processing Internet Client/Server PC mainframe manuals 6

7 Industry Vision Global Network of Partnerships Governments Revenue Agencies Financial Institutions Share Tax Information Vision Flexibility Technology Providers Small Businesses Multinational Corporations ERP Solution Framework (Gartner 2000) Marketplace/ C-Commerce Framework Other Enterprise Enterprise Firewall Enterprise Portal/ Single User Interface Packaged or Homegrown Integration Framework Data ERP II Gartner Programs Ever-Present Legacy Application Other Application(s) Component/Object Architecture 7

8 Integrations Integrations Current Issues Technologies of the Systems to be Integrated can be Different Each Integration is Specific to the Application Installed Custom Solutions Must Understand Each Application s External Interface Application Upgrades are not Independent Costly 8

9 What we ve seen thus far Technology has made things better and faster The world has become interconnected The Tax Domain is Global Higher cost will play a significant role in future trends Are there ways to lower anticipated costs? 9

10 Standards International Organization for Standardization (ISO) Documented Agreements Used as rules, guidelines or definitions of characteristics Ensure that materials, products, processes fit their purpose Technology Standards can Enable Geographic identification (where) Further automation of tax processing flow Flexibility for users of standards Easier access to information Less cost 10

11 Technology Standards Internet transport protocols (TCP/IP, HTTP) Ability to exchange information (XML) Ability for applications to prompt a conversation with each other Integration methodologies to set standards for how applications will then talk to each other (SOAP, UDDI, WSDL etc.) Barriers to Standards Proprietary solutions I have the answer but it s mine! Competing standards Time to mature (learning what works and what doesn t) Priorities Where does tax fall into the standards world 11

12 Standards Organizations XML e tensible arkup XML is a MARKUP or LABELING language for documents containing structured information. A markup language is a mechanism to identify structures in a document and label them. anguage 12

13 XML is Not! NOT a silver bullet! It will not solve all data manipulation requirements and should be used appropriately and wisely. NOT only for the Web Any application dealing with hierarchical information can make use of the XML. Not self-defining, not self-indexing Solutions that utilize XML should be architected and carefully planned. NOT Excellent Marketing Language Products that use XML are not necessarily better products. TaXML Vision and Goals A tax-specific XML- based open standard as defined through collaboration of interested parties such as business and individual taxpayers, vendors, and governments Collaborate with other standards bodies Simplify and speed up process Promote consistency to avoid ambiguity 13

14 Tax Information TaXML Components Hierarchy 14

15 Standards-Driven Interfaces Bringing TaXML to Light Vertex is currently working with the OASIS standards committee. Forming a TaXML technical committee which coordinates The development of an international, tax domain specific, XML-based standard. Will engage the following to participate in the development of TaXML. Businesses Governments Financial institutions Legal services Solution providers 15

16 Bringing TaXML to Light TaXML will incorporate additional XML business vocabularies Develop a common tax vocabulary to identify tax related. information within a particular business context. Tax Jurisdiction Identification Standard Approach taken by MTC/FTA promotes a standard that can be used by both taxpayers and government. This standard can be viewed as a foundation for states to work closely with both taxpayers and solution providers so that accurate jurisdiction identification is adopted without causing undue burden. There are opinions that this standard for an electronic database should accommodate more accurate allocation of revenue to jurisdictions beyond wireless telecommunication taxes such as sales, use, and other transaction based taxes. 16

17 Tax Jurisdiction Identification Standard Vertex s position is to support the proposed standard: The standard takes into consideration the complexities associated with identifying not only political boundaries, but also those boundaries that deal with local tax areas, such as Special Purpose Districts in Texas. The flexibility incorporated into the standard will reduce barriers to adoption into existing processes and systems. Vertex s GeoCode is widely used throughout the United States and will be able to accommodate the use of the TS 158 standard. Tax Jurisdiction Identification Standard Passage of this standard will enable: Firms to accurately perform address mapping Telecommunication providers to efficiently comply with states that have local tax jurisdictions States to effectively accommodate local tax sovereignty Accurate integration of tax rates and rules 17

18 Future Internet Trends Industry Vision Technical Perspective Web Services Web Services are modular business services with each module fully implemented in software and delivered over the Internet. The modules can be combined, can come from any source, and can be acquired dynamically and without human intervention, when needed. Gartner Group 18

19 Web Services Ask Receive Tax Shipping costs Funds transfer Etc Anywhere Anytime Web Services Web Services, at a basic level, can be considered a universal client-server architecture WSFL (Web Services Flow Language) specifies how a Web Service is interfaced with another through workflow WSDL (Web Services Definition Language) used to define how to communicate to the interface of a Web Service WSFL and WSDL are defined in an XML format 19

20 How Application Service Providers (ASP) Work by Marshall Brain The ASP owns and operates a software application. The ASP owns, operates and maintains the servers that run the application. The ASP also employs the people needed to maintain the application. The ASP makes the application available to customers everywhere via the Internet, either in a browser or through some sort of "thin client." The ASP bills for the application either on a per-use basis or on a monthly/annual fee basis. In many cases, however, the ASP can provide the service for free or will even pay the customer. ASP with ERP/CRM Systems Calculations and Reporting Calculations and Reporting Customer Calculations Customer Remits to Jurisdiction Calculations Paper Return Remittance for Customer Electronic File Tax Jurisdiction 20

21 ASP Remittance and Commerce Broker $ Customer Deposits $ for 1 NCR Purchase Order for 1 NCR Office Depot Store #112 Philadelphia, PA NETWORK Time1: 03/02/ :36AM Event Time to Remit Tax Vertex Withdraws $57.50 for Remittance Vertex's Account # Commerce Bank Time2: 03/10/ :00AM Event Time to Send Payment Time3: 03/02/ :24PM Vertex Withdraws $ for Payment Invoice (Pre-Tax) Invoice (Post-Tax) NCR Receives $ for 1 Unit Copy of Tax Return Purchase Order for 1 NCR NCR Cash Registers Ohio Invoice (Pre-Tax) Ship 1 NCR Invoice $ for 1 NCR Ohio Amount: $ State Tax: $50.00 County Tax: $7.50 City Tax: $ Total Amount: $ $50.00 Tax Return $ Franklin County City of Columbus Remit $57.50 Managed Service Providers (MSP) ASP are focused more towards providing access to specific applications Managed Service Providers are focused towards providing access to full solutions Applications Services Managed Service Providers realized that customers needed more then just a hosted environment Provide services for identifying deployment scenarios, implementations, training, and subject matter experts. 21

22 Technology Based Solutions Lack of flexibility In and outside the fire wall (control) Processing Time The market for: Web Services utilizing XML-based technologies Application Development Suites Management Tools Expanding from $380 million to over $15.5 billion What Have We Seen Today Technology Evolution Continues All Technologies Must Be Supported Costs are High and Play a Significant Role in Future Solutions Standards Will Help Reduce Costs Works Continues With TaXML Internet Trends Help Mold the Future of Business The World Has Become Interconnected 22

23 Internet Sites of Interest Vertex Contacts Tom DiBello Vertex Inc ext Dick Eppleman Vertex Inc ext

24 Technology and Electronic Commerce The Possibilities and the Challenges 24