Ahead

Kiplinger's Personal Finance Magazine, June, 2000 by Melynda Dovel Wilcox

WHAT NEXT FOR YOUR MONEY

TECHNOLOGY | Private, secure and intelligent, too, SMART CARDS will replace magnetic strips and lighten the load you carry in your wallet.

A CHIP OFF THE OLD CARD

WHAT'S THE QUICKEST way to improve your IQ? Get a smart card. Chips are so cheap, and the technology is developing so fast, that within the next few years you'll be able to use the same card to get access to a building, make a purchase on the Internet, and possibly even start your car.

Fueling the big push are privacy and security, says Donna Farmer, president of Smart Card Forum, an industry group. In one of American Express's most successful card launches ever, more than one million customers signed up for a Blue Card, a credit card with an embedded chip that holds a "certificate of authenticity." That certificate, used with a PIN, secures information in an online "wallet" that makes Internet shopping safer and more convenient.

In addition to Blue Card holders, three other groups are riding the early wave of smart-card technology:

Federal employees. The Department of Defense plans to deploy four million smart cards in the next three years to domestic and overseas employees for identification, security and banking purposes.

In a separate test, about 400 employees of the General Services Administration are using a smart card that can do more things than a Veg-o-matic. A radio-frequency antenna embedded in the card allows access to a building and secure areas inside. A biometric function asks for a fingerprint and lets you boot up your computer. Meanwhile, the card doubles (and triples) as a credit card and long-distance phone card for business travel, and lets users go straight to an American Airlines card reader at the gate to get a boarding pass.

Commuters. More than 50,000 riders board the Metrorail system in Washington, D.C., with a SmarTrip card you don't even have to pull out of your wallet. Better yet, riders can register the card, so that if it's lost or stolen they can cancel it and retrieve the remaining value. Another GSA pilot program is testing a combined employee-ID and SmarTrip card that can also be used in retail locations on the agency's campus.

Within the next five years, several regions of the country, including Washington, D.C., Chicago and San Francisco, will be operating smart-card programs that link different modes of transit, as well as parking and possibly highway tolls, predicts Mike Dinning, division chief at the Transportation Department's Volpe Center, in Cambridge, Mass.

College students. About 35 universities already issue smart cards to their students, and each year the number of schools doubles. In addition to opening doors and identifying students, the campus cards are evolving into souped-up ATM and debit cards to make purchases on and off campus.

Eventually, says Charlie Walton of Securify, an information-security consulting firm, your smart card will be your key to the Internet. You'll be able to unlock documents stored there from a hotel room, an airport terminal or wherever you happen to be.

TAXES | States are getting serious about collecting SALES TAX on Web purchases.

TAKING THEIR CUT

DO YOU LIVE in a state other than Alaska, Delaware, Montana, New Hampshire or Oregon? Did you buy something on the Internet in 1999? Then you're probably a tax cheat.

"People are dead convinced that there is no sales tax" on Internet purchases, says David Hardesty, a tax accountant and founder of EcommerceTax.com. What they don't know, or choose to ignore, is that the vast majority of states have a sister tax, called a use tax, that comes into play when you make a purchase from a Web site, catalog or other out-of-state merchant.

States lost $525 million in uncollected sales tax from online purchases last year, according to Forrester Research--three times as much as the year before and enough to prompt several states to step up their efforts to collect the use tax.

Michigan, for instance, added a line to its personal income-tax return for 1999 on which you could enter the actual amount of tax due, assuming you kept good records, or an estimated amount based on your income. If your adjusted gross income was $75,000 to $100,000, for example, your estimated tax liability was $44. Even before all the returns were in, four times as many residents had paid a use tax as in the previous two years combined.

About half of the states provide some sort of compensation to merchants as an incentive to collect our-of-state sales and use taxes at the point of sale, and states are working together on a system that would make it easier for merchants to comply with laws in all 50 states. Until then, says Hardesty, "it would be nice if Amazon.com would lead the way and send you an e-mail that says, `Here's how much you bought from us.'" Fat chance.

INVESTING | With Treasury yields falling, fix your attention on MUNICIPAL BONDS.

A TILT TO TAX-FREE

STRONG DEMAND for Treasury securities is driving yields so far down that tax-free municipal bonds are often a better deal.