Transcript Commerce in the E-Marketplace: E

July 11, 2011
Commerce in the
eMarketplace – “eFairness”
CWAG
Laurie Smalling
Director of Public Affairs and Government Relations
What is eFairness?
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eFairness
eFairness Impact
For American retailers:
• Fair tax legislation means a level playing field for traditional retailers
across the country.
• It provides Main Street small businesses with a real chance to
compete with their online-only counterparts.
For American consumers:
• Fair tax legislation would provide important protections as American
consumers are still required by law to pay the sales tax on purchases,
even if the retailer does not collect them.
• Less burden and less risk associated with point of sale collection of
sales taxes.
For state and local governments:
• With the click of a button, states are losing millions of dollars a year in
revenue.
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Implications of the status quo
• Online sales are increasing
and customer behavior is
being shaped
• Traffic count at traditional
retailers is decreasing
• Sales tax numbers will
continue to go down and
states will suffer
• Businesses will shut down
and people will lose jobs
eFairness
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What is the internet?
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eFairness
Legal Dynamics
Pre-1992 - U.S. Supreme Court decisions clarified that the imposition of state taxes on
interstate commerce is permissible.
- Activity to be taxed must have substantial nexus with the taxing state, be fairly
apportioned, not discriminate against interstate commerce and be fairly related to
services provided by the state.
1992 - Quill v. North Dakota, 504 U.S. 298.
Facts: North Dakota sales tax law imposed tax collection obligations on retailers
who regularly solicited sales from ND residents, including by advertising in catalogs
mailed to ND residents. Quill, an office supplier, challenged a ND tax assessment
on the grounds that ND law violated the Commerce and Due Process Clauses.
Ruling: Commerce Clause - State may not collect sales or use tax from an out-ofstate mail order seller with no substantial nexus (physical presence) in the state.
Due Process Clause - Does not prohibit state taxation if the retailer has purposely
directed its commercial activities in the state, even if no physical presence in the
state.
Application of Quill:
•
Presence of property, offices, facilities, employees, agents or independent
contractors in the state is sufficient. In many instances, the presence of
independent contractors is sufficient.
•
More tenuous agency or affiliate relationships between the taxpayer and others
are less clear, e.g. New York, North Carolina, Oklahoma laws.
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Legal Dynamics - cont
• 2000 – Streamlined Sales Tax (SSTP) project launched
• 24 states have implemented uniform laws
• Congressional authority needed in order to constitutionally impose tax
on remote sellers (internet, mail order, etc.) that do not have substantial
nexus.
• 2010 - New York and other states enact tax collection laws which attempt to
attribute physical presence of others to remote sellers.
• NY statute imposes tax collection duties on remote seller if the seller
has a commercial arrangement with a NY entity that directs customers
to the remote seller, usually marketing via a web site link.
• Amazon and Overstock.com challenged the constitutionality of the NY
statute.
• The NY trial court concluded that the statute was constitutional “on its
face” for Commerce Clause and Due Process challenges but that further
discovery was required in order to determine if the statute “as applied”
to the sellers was unconstitutional. The decision was appealed and
upheld. The case is back in the trial court waiting on next steps.
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Possible Solutions
• Legal opinion on enforcement efforts by Departments of Revenue
• Main Street Fairness Bill- Federal legislation which allows SSTP
states to collect tax from remote sellers. Many similar bills have been
introduced in the past but nothing has been filed in the current
session.
• Pursue other federal legislation (not yet introduced) that is not tied to
SSTP but which specifically authorizes states to impose tax on remote
sellers and provides similar concessions and protections for remote
sellers.
• U.S. Supreme Court overrules Quill after challenge to state legislation
by affected retailers.
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Contact
Thank you!
Laurie Smalling
479-204-2968
[email protected]
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