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ECommerce Taxation Illustrating Classic Legal Environment and Business Law Concepts

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... tax jurisdictions in US. Now approximately 7500. ECOMMERCE ... States' attempt to make tax collection less burdensome/more amenable to congressional approval. ... – PowerPoint PPT presentation

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Title: ECommerce Taxation Illustrating Classic Legal Environment and Business Law Concepts


1
E-Commerce Taxation Illustrating Classic Legal
Environment and Business Law Concepts
  • UMKC Bloch School
  • Internet Tax Policy Project
  • Rita Cain Larry Garrison

2
Relevant Constitutional or other Course Concepts
  • Federal Commerce Power,
  • Undue burden on interstate commerce by the
    states, (the Negative Commerce Power).
  • Individual due process rights -- minimum contacts
     
  • Separation of powers between legislative and
    judicial branches.

3
Core Learning Objectives
  • Students will be able to explain how the
    constitutional commerce power is the basis for
    the current conflict over e-commerce taxation by
    the states.
  • Students will understand the relationship of the
    due process/minimum contacts analysis to the
    e-commerce tax jurisprudence.
  • Students will be able to recognize separation of
    powers principle that is reflected in the Quill
    case.
  • Students will be able to recognize the doctrine
    of stare decisis as applied by the US Supreme
    Court in the Quill case.

4
Sales and Use Tax Primer
  • 45 states impose sales taxes.
  • Sales Taxes are submitted by the seller to the
    state where the sale occurred.
  • Sellers are obligated to collect sales taxes as
    part of the privilege of conducting business in
    the stateDue process NEXUS requirement.

5
Sales and Use Tax Primer (continued)
  • Use Taxes are part of every sales tax system, to
    prevent buyers from going to non-taxing
    jurisdictions to make purchases and avoid paying
    sales tax. HOW?
  • Use Taxes are charged TO THE BUYER for goods
    purchased in non-taxing jurisdiction and brought
    into the Buyers HOME state for use there.
  • Businesses usually understand the obligation to
    remit use taxes on goods bought out-of-state for
    business use.
  • Consumers seldom appreciate use tax payment
    obligation when moving goods across state lines.

6
Chronology of Legal Events
1967 S.Ct. decides National Bellas Hess
  • Established PHYSICAL nexus requirement for use
    tax collection
  • Due Process Commerce Power rationales.

7
Chronology of Legal Events
1967 S.Ct. decides National Bellas Hess
1985 Burger King
  • Eliminated physical nexus requirement for
    personal jurisdiction (Due Process)
  • Established PHYSICAL nexus requirement for use
    tax collection
  • Due Process Commerce Power rationales.

8
Chronology of Legal Events
1985 Burger King
1967 S.Ct. decides National Bellas Hess
1992 S.Ct. decides Quill
  • Eliminated physical nexus requirement for
    personal jurisdiction (Due Process)
  • Established PHYSICAL nexus requirement for use
    tax collection
  • Due Process Commerce Power rationales.
  • Reversed Bellas
  • Hess re due
  • Process.
  • Retained nexus
  • requirement
  • under
  • Commerce Clause

9
Quill Decision
  • Quill (1992) reversed Bellas Hess on due process
    concept. Applied Burger King.
  • Upheld Bellas Hess based on Commerce Power.
    Economic considerations under Commerce Power
    differ from due process rights analysis. Stare
    Decisis applied.
  • States cannot require tax collection from
    out-of-state sellers. But, Congress can alter
    the result because it is a matter of interstate
    commerce, not an individual due process
    protection.
  • Undue burden is a fact analysis for
    legislative, not judicial branch. S.Ct. noted
    6000 sales tax jurisdictions in US. Now
    approximately 7500.

10
ECOMMERCE TAX PROBLEM IN A NUTSHELL
  • To require a seller to collect and remit the
    SALES tax, Buyers state must establish NEXUS
    with that seller. WHAT AMOUNTS TO NEXUS IN
    DISTANCE SALES? Quill provides the answer
    PHYSICAL PRESENCE in the taxing state is still
    required.
  • If no NEXUS, Buyers state is entitled to USE
    TAX from the buyer. HOW DOES A STATE TRACK AND
    ENFORCE USE TAX OBLIGATIONS IN DISTANCE
    TRANSACTIONS?

11
Additional/Optional Learning Objectives
  • Students will be able to explain the relevance of
    Quill to new state taxes on internet services.
  • Students will understand the impact of the
    Internet Tax Freedom Act.
  • Students will be able to explain the purpose
    behind the Streamlined Sales Tax System.

12
Does Quill Apply to Taxes on the Internet?
  • Are state sales taxes on internet services such
    as access, email delivery, downloaded software or
    media barred by Quill?

13
Does Quill Bar State Taxes on Internet Services?
  • Similarities to Quill analysis
  • Internet service vendors would have little/no
    physical presence in most states.
  • Many vendors may have very few transactions in
    some states during each taxing period.
  • Vendors may have no knowledge of where the buyer
    resides. Deliveries are to IP addresses, not
    street locations. Potentially impossible burden
    to know applicable tax jurisdiction(s).

14
Does Quill Bar State Taxes on Internet Services?
  • Distinctions from Quill.
  • Internet industries emerged after Quill. No
    expectation of a tax exemption based on Bellas
    Hess precedent like goods sellers had leading up
    to Quill.
  • Many vendors are large telecom providers that are
    already collecting state taxes on cable /or
    phone services. Nominal burden to collect tax on
    additional services like DSL.

15
Chronology of Legal Events
1998 Congress passes Internet Tax Freedom Act
(ITFA)
1985 S.Ct.decides Burger King
1967 S.Ct. decides National Bellas Hess
1992 S.Ct. decides Quill
  • Eliminated physical nexus requirement for
    personal jurisdiction (Due Process)
  • Reversed Bellas
  • Hess re due
  • Process.
  • Retained nexus
  • requirement
  • under
  • Commerce Clause

3-year moratorium on states power to impose NEW
taxes on internet services (expanding Quill
result to transactions not expressly covered).
  • Established nexus concept for use tax collection
  • Due Process Commerce Power rationales.

16
Chronology of Legal Events
1992 S.Ct. decides Quill
2001 ITFA extended to 2003
1967 S.Ct. decides National Bellas Hess
?
Repeated extensions by Congress through 2010
1985 S.Ct.decides Burger King
1998 Congress passes Internet Tax Freedom Act
(ITFA)
17
Latest Developments-State
  • States are NOT rushing to pass new internet
    service taxes despite expiration of federal
    moratorium.
  • Streamlined Sales Tax System. States attempt to
    make tax collection less burdensome/more amenable
    to congressional approval. http//www.nga.org/nga/
    salestax/1,1169,,00.html
  • State collection attempts through individual
    income tax filings. Some exempt first X00 in
    purchases.
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