Transcript TAXATION OF E-COMMERCE - Academic Technology Center

TAXATION OF E-COMMERCE

State sales tax-tax imposed by the state
on the sale or lease of tangible personal
property
– for goods purchased for use in the same
state
– collected by the vendor from the buyer or
leasee at the time and place of purchase
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TAXATION OF E-COMMERCE
 Use
tax- a tax imposed by a state
on buyers who purchase goods outof-state for use within the state
– it prevents consumers from avoiding
sales tax by purchasing goods out-ofstate for use within the state
– paid by the buyer
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TAXATION OF E-COMMERCE
State’s taxing jurisdiction- “nexus” or
contacts that form the legal basis for a
state to impose taxes on an out-of-state
business
 Taxing nexus is limited by the Due
Process and Commerce clauses of the
United States Constitution

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TAXATION OF E-COMMERCE
Due Process Clause- requires some
minimum contacts between the taxing
state and the person or property it
seeks to tax
 Commerce Clause - requires a
“substantial nexus” with the taxing
state
[Quill Corp. v. North Dakota,
504 U. S. 298 (1992)]

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TAXATION OF E-COMMERCE

Due Process- an out-of-state business
that purposefully avails itself of the
benefits of a state’s economic market
may subject itself to the state’s taxing
jurisdiction even without a physical
presence in the state
– similar judicial analysis as jurisdiction cases
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TAXATION OF E-COMMERCE

Commerce Clause - 4 part test
– 1) need a substantial nexus with the taxing
state
– 2) tax must be fairly apportioned
– 3) tax cannot discriminate against
interstate commerce
– 4) tax must be fairly related to the services
provided by the state
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TAXATION OF E-COMMERCE
– QUILL CORP. v NORTH DAKOTA
–COMMERCE CLAUSE REQUIRES A
SELLER HAVE A PHYSICAL
PRESENCE IN THE TAXING
STATE BEFORE IT MAY IMPOSE A
DUTY TO COLLECT A USE TAX
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TAXATION OF E-COMMMERCE

QUILL CORP. v. NORTH DAKOTA
– A “SLIGHT PRESENCE” IS NOT ENOUGH
TO CONFER TAXING JURISDICTION ON
THE STATE UNDER THE COMMERCE
CLAUSE
– A “SUBSTANTIAL NEXUS” IS REQUIRED
– PHYSICAL PRESENCE NEED NOT BE
SUBSTANTIAL, BUT MUST BE MORE THAN
SLIGHT
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TAXATION OF E-COMMERCE
Tax Nexus by attribution - an out-ofstate business has activities by agents,
sales representatives or independent
contractors
 Market-in State - do the activities of the
agents establish a market in-state?
 Affiliation theory - the activities of a
subsidiary are imputed to the parent

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TAXATION OF E-COMMERCE

Nexus and Internet Service Providers -
–does nexus exist based on a
point of presence site (POP) in a
taxing state?
–does a POP site constitute a
physical presence in the taxing
state?
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Taxation of E-COMMERCE
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The Internet Tax Freedom Act (1998)
–moratorium on Internet taxes for
the next five years
–created a 19 member Advisory
Commission on Electronic
Commerce (ACEC) to study and
report to Congress by April 2000
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Taxation of E-Commerce
– New Developments– Sen. JohnMcCain’s bill - to amend ITFA and
make current moratorium on sales and use
tax on electronic commerce permanent
– Gov. Leavitt (R-Utah) - a proposed “zeroburden program”- a third-party calculates
the tax where the goods are delivered and
charge the buyer’s credit card
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