Berkeley, Calif. City Councilmember Gordon Wozniak has suggested an email tax to raise money for the failing United States Postal Service. This seems a little like taxing cars to resuscitate the horse-and-carriage industry, but Wozniak thinks that it could discourage spam mail as well as support vital post office operations.

“Since many billions of e-mails are sent every day, an e-mail tax could raise substantial sums,” he said in an e-mail to the local blog Berkeleyside. “Most of the revenue raised could be used to fund the managing and maintaining the Internet Superhighway and a portion to subsidize snail mail. Think of it as analogous to the gas tax used to maintain our physical highways.”

Wozniak brought up the idea in response to the Berkeley City Council’s efforts to halt the sale of its downtown post office, which is in a historic building. The Postal Service said in a statement that the building would be sold due to a 26 percent drop in total mail volume over the past three years, brought about “by the diversion to electronic communication and business transactions.” Not to mention its forced payment of $5.5 billion a year into future retiree health benefit programs, and private companies like FedEx and UPS that do a better job.

Locals are fighting to keep the post office open by looking at ways for it to increase its revenue stream, such as renting part of the building to local businesses. Considering the Internet is the real culprit here, as well as the American population’s treacherous defection to digital communication, Wozniak’s solution is to tax it. Like cigarettes, bad habits need to be taxed.

While it may seem crazy to most rational human beings, the United Nations Development Program actually entertained the nation back in 1999 as a way to fund “the global communications revolution” and finance the expansion of the web. However, Jonathan Zittrain, an expert in cyberlaw and Internet governance, told Berkeleyside why this will never, ever work.

“To the extent that the cheap flow of flat rate first class mail has positive effects for society at large, the insistence that the Post Office be revenue-neutral may not make sense,” Zittrain said. “Taxing email as an alternative, however, is a terrible idea: Bad in theory and truly unworkable in practice. There have been proposals to see fees imposed on email by service providers — or recipients themselves — as a way of minimizing spam, but to impose an external tax on it when there are ready substitutes –Facebook messaging, anyone? — and when collection would be a nightmare, seems a nonstarter. There is no reason to tax electronic mail users in particular to save the Post Office, any more than it would make sense to tax coffee drinkers to do it.”

Oh, and let’s not forget about the Internet Tax Freedom Act which President Bill Clinton signed in 1998 which banned an e-mail tax. So the e-mail tax isn’t only stupid but is  also illegal. Desperate times call for desperate measures, I guess. If the United States Postal Service goes under, there won’t be a nationalized way to send summer camp care packages or handwritten love letter. The Internet ruins lives again.

Photo credit: urbanwoodchuck/Flickr

Judge Gary W.B. Chang ruled Friday that online travel companies owe the state of Hawaii approximately $110 million in unpaid taxes and $40 million of interest on sales of Hawaii hotel rooms.

Between 2000 and 2011, sites like Expedia, Hotels.com, Hotwire, Orbitz, Travelocity, and Priceline generated more than $2.7 billion in Hawaii hotel rooms. These companies collected enough money to cover the General Excise Tax (GET), but they never paid it to the state. Chang is now ordering that they fulfill their financial obligations, as well as seeking penalties for the companies’ failure to file tax returns and pay their due.

The ruling stated that the GET is a privilege tax imposed on businesses for the privilege of doing business in the State of Hawaii and should include the sale of hotel rooms. Governor Neil Abercrombie supports the ruling by the Tax Appeal Court, and he said in a statement that the asked the attorney general and the tax director to “aggressively and relentless go after these taxes that were due and owing.”

The additional revenue could amount to a further $20 million a year for Hawaii. This will have a significant, long-term economic impact on the state, which could use the money to bolster its budget in areas like infrastructure and schools.

However, the companies on the other end of this dispute will not accept this mandate lying down. In response to the judge’s decision, the Travel Technology Association, whose members include Expedia, Orbitz, Priceline and Travelocity issued the following statement:

“This ruling will significantly increase costs for all tour operators, travel agents, OTCs, and other travel intermediaries that facilitate travel to Hawaii.  Because demand for travel to Hawaii is acutely sensitive to price changes, this change in tax treatment will harm consumers and significantly reduce demand for Hawaii vacations.  Travel Tech members intend to challenge this ruling as well as work cooperatively with tourism leaders and lawmakers to minimize the ruling’s damage to the Hawaii tourism economy.”

The hearing is set for March 8, and a trial date set for April 15 to resolve any outstanding issues. Read the report from Hawaii’s attorney general. 

As Bloomberg reports, the search giant routed almost $10 billion in revenues to its Bermuda shell company. And that’s not because Larry and Sergey like to fly their private jets to the island paradise for beach vacations and mai-tais.

It’s because using the Bermuda shell company saved Google $2 billion in taxes, slicing its overseas tax bill in half.

Bermuda is a well-known “tax haven,” making a Forbes list of the world’s best places to avoid paying taxes. Some companies have moved their entire head offices to the island nation because Bermuda requires corporations to pay absolutely no tax. The country began that policy way back in 1935 as an attempt to bring in offshore companies to develop the local economy.

Google and other companies move money to the tax haven via strategies such as the Double Irish, in which one corporation is set up in Ireland but located in Bermuda, thus being tax-exempt by Irish rules. This first company acquires the international intellectual property rights from the U.S. mother corporation and licenses them at an enormous rate to another Irish company, locally resident, which then takes the profits from all the other European subsidiaries.

But because the second company makes very little money (due to the huge IP licensing rates) it pays very few taxes. And the first company, which is incorporated in Ireland but resident in Bermuda, collects the tax-free cash.

The result of Google moving its revenue to Bermuda?

Google payed an effective tax rate of 3.2 percent of its profit earned overseas last year — a ridiculously low number. Most of the revenues moved to Bermuda are from European countries, which, of course, are not entirely satisfied with the arrangement.

This policy is not unique to Google. Apple employs similar strategies, as do Facebook and Microsoft.

While you can hardly blame a company for taking whatever steps it can to minimize tax burdens, it’s clear that the UK, France, and other countries would like to see income earned locally taxed locally.

Expect European Union nations to take steps to try to recapture some of the tax revenue they see as belonging to them.

photo credit: smallscreen via photopin cc

Around 1,800 U.S. citizens living abroad formally renounced their citizenship in 2011 — just like Facebook co-founder Eduardo Saverin — and many did so for tax purposes.

Saverin told Bloomberg today that his decision was one of convenience; it’s widely assumed that the young would-be billionaire refers to financial convenience. Filing taxes as a U.S. citizen living abroad can be an expensive and complicated nightmare, and at least 1,788 (and likely many more) made the choice to sever their U.S. ties rather than dealing with it.

Right now, Saverin controls around four percent of Facebook stock (although Facebook CEO Mark Zuckerberg controls the votes for those shares due to some contractual jiu jitsu). That stock will be worth billions as of Facebook’s IPO day, and as a result, Saverin could lose billions in a quick stock sale through capital gains taxes.

Singapore, the country in which Saverin currently resides, is a tax haven that levies no tax on income generated outside Singapore. Also, as a non-U.S. citizen, Saverin would get to skip disclosing his personal and other bank account balances to the IRS.

Though his decision is highly controversial, Saverin is hardly alone is his decision. The State Department said it records around 1,100 citizens voluntarily renouncing their citizenship each year, but the tax-related expatriations list from the IRS tells a different story.

And the number of U.S. citizens voluntarily expatriating in 2011 was more than double the number in previous years. In fact, more U.S. citizens turned in their passports in 2012 than in 2007, 2008, and 2009 put together.

Because the U.S. is one of just a handful of countries that taxes expats for income earned outside the United States, our expats have more hurdles than most come tax-time, including lots of disclosures and paperwork on foreign and domestic income and accounts. And a new tax law requires foreign banks and other financial institutions to turn over data about U.S. clients to the IRS each year. Failure to comply can lead to fines (fines that start at $10,000) and criminal charges, even when the taxpayer in question doesn’t actually owe any money.

Saverin and other expats do face a departure or exit tax, but in the future, they will be exempt from having to disclose their financials in ways that many clearly consider too invasive.

The trend is likely to continue because of better tax treatment lately for foreign investors there.

Investors into private companies pumped nearly $1.37 billion into 71 deals, more than double the $662 million they invested in 69 deals during the same period last year, according to data released by Dow Jones VentureSource. One deal — the $430 million investment into Internet company Beijing-based Oak Pacific Interactive — made up almost a third of the total. However, even without that deal, the quarterly investment level is still higher than any time since 2003.

Some 71 percent of the money flowed to companies in the “information services” and “media, content and information” sectors.

By comparison only 12 percent of venture investment in the U.S. went to those sectors during the period.

IDG Ventures and Sequoia remained the most active investors during the quarter. Also emering to the top of the most active list is Draper Fisher Jurvetson.

The trend of U.S.-related firms investing in China may only increase, given the legal changes recently made by several large cities to reduce tax burdens for foreign firms. I wrote about China’s move to remove the repatriation tax first from IDG Ventures. Now, the Shanghai, Beijing and Tianjin governments appear to be making similar moves for any foreign firms located in their geographic jurisdiction. The change allows these private equity firms to register legally as local equities investment firms. In the most recent move, Shanghai is letting locally registered firms with initial capital of 100 million yuan ($14.56 million) or more receive the special tax treatment.