E-commerce Tax Calculation via Payment Gateway Intermediation
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Solution Overview
Problem
Current systems for calculating, collecting, and disbursing sales and use taxes on e-commerce transactions are burdensome for merchants and consumers, requiring significant resources and complex implementations, and often lack integration with transaction flows, leading to low compliance and revenue losses for governments.
Innovation Solution
A system and method that calculates, collects, and disburses sales or use taxes at phases other than the merchant's point of sale, such as through payment gateways, acquirer merchant banks, or issuing banks, alleviating the burden on merchants and consumers by integrating tax-related functionality into the transaction flow, thus simplifying implementation and enforcement.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If merchants are required to collect sales and use taxes at the point of sale, then tax collection responsibility is assigned to merchants, but this creates significant operational burden and complexity for merchants
Solution Approach 1:
The patent extracts the tax collection and disbursement functions from the merchant's point-of-sale system and relocates them to third-party financial institutions (acquirers, issuers, or gateways) that already participate in the transaction flow. This removes the operational burden from merchants while maintaining reliable tax collection through entities that have access to transaction data and payment processing capabilities.
2Reliability
If merchants implement point-of-sale systems for tax compliance, then tax collection capability is improved, but implementation and maintenance costs increase significantly
Solution Approach 1:
The patent leverages the existing multi-functional role of third-party financial institutions in the e-commerce transaction ecosystem. These entities already perform authorization, clearing, and settlement functions; the invention adds tax collection and disbursement capabilities to their existing infrastructure, avoiding duplicate systems and reducing implementation costs while maintaining reliable tax collection.
3Reliability
If tax collection is integrated into merchant systems, then tax compliance is enforced, but transaction processing time and internet performance are impacted
Solution Approach 1:
The patent performs tax calculation and collection actions at predetermined stages in the transaction flow (such as during authorization or settlement) rather than adding separate post-processing steps. By integrating tax handling into existing transaction phases, the system ensures compliance without creating additional processing delays or impacting internet performance.
4Reliability
If merchants are responsible for disbursing collected taxes to authorities, then tax collection control is maintained, but administrative complexity and resource requirements increase
Solution Approach 1:
The patent introduces third-party financial institutions as intermediaries between merchants and tax authorities. These intermediaries assume responsibility for holding collected taxes and disbursing them to appropriate authorities, thereby maintaining tax collection control through established financial channels while significantly reducing the administrative complexity and resource requirements for merchants.
Data Source
AI summary
The invention provides a system and method for calculating, collecting and/or disbursing one or more third party payments owed to one or more third parties resulting from one or more electronic transactions occurring over a wide area network (WAN) between a customer and a merchant. The transaction concern one or more services and/or products provided by the merchant. The system and method require that the calculation of the amount owed to the third party occur at a WAN node that is different than and at a different locale than that of the merchant. By so doing, the merchant is not required to purchase and install equipment and/or software of the third party to which a payment is due. The present system includes a merchant node, third party payment processing node, financial network, and third party payment receiving node. A consumer conducts a transaction at a merchant node. As a result of the transaction, a third party may or may not be due a payment. The third party payment processing node determines whether such payment is due, calculates the amount of the third party payment, and/or authorizes payment of the third party payment. The financial network, which includes at least the merchant's acquirer bank, the customer's credit card issuing bank and the credit car association, then handles payment of the amount(s) due to the third party, the amount(s) due to the merchant and the amount(s) owed by the customer. The system of the invention can be a fee for service type of system wherein those (the merchant or the third party) that employ the system and/or method pay a fee, for example per transaction or per amounts collected and disbursed, to the provider of the claimed system.