Title: ECommerce Taxation Illustrating Classic Legal Environment and Business Law Concepts
1E-Commerce Taxation Illustrating Classic Legal
Environment and Business Law Concepts
- UMKC Bloch School
- Internet Tax Policy Project
- Rita Cain Larry Garrison
2Relevant 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.
3Core 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.
4Sales 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.
5Sales 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.
6Chronology of Legal Events
1967 S.Ct. decides National Bellas Hess
- Established PHYSICAL nexus requirement for use
tax collection - Due Process Commerce Power rationales.
7Chronology 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.
8Chronology 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
9Quill 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.
10ECOMMERCE 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?
11Additional/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.
12Does 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?
13Does 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).
14Does 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.
15Chronology 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.
16Chronology 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)
17Latest 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.