Academic journal article The Journal of High Technology Law

The Imposition of Sales and Use Taxes on E-Commerce: A Taxing Dilemma for States and Remote Sellers

Academic journal article The Journal of High Technology Law

The Imposition of Sales and Use Taxes on E-Commerce: A Taxing Dilemma for States and Remote Sellers

Article excerpt


The Internet has greatly influenced business enterprise and the landscape of the economy. (1) Not only may a burgeoning company establish a physical storefront, but it may also enter the realm of cyberspace, conducting business through virtual transactions. (2) Consumers purchase items from the comfort of their homes, buying everything from books and airline tickets to clothing and computers. (3) This new form of electronic commerce (e-commerce) has become a staple in both the domestic and international economies. (4) Consequently, businesses and consumers will spend approximately one hundred billion dollars through e-commerce in 2003. (5)

The treatment of sales and use taxes in online transactions is an important issue in e-commerce law. (6) A seller of goods in an intrastate transaction must collect a sales tax from the buyer and remit the tax to the government. (7) When a buyer purchases a good from an out-of-state seller (remote seller), whether through mail-order catalogue or e-commerce, the buyer's state imposes a use tax. (8) The remote seller must collect and remit the tax provided that it has a substantial nexus, or physical presence, within the buyer's state. (9)

A seller on e-commerce (e-retailer) acts as a remote seller by generating sales from buyers outside of its state of incorporation and principal place of business. (10) Thus, an e-retailer may conduct business in fifty states but lack physical presence in forty-nine states, and will therefore be exempt from collecting use taxes from out-of-state buyers. (11) With thousands of e-retailers generating billions of dollars in sales, the amount of uncollected use taxes is staggering. (12) States are eager to recover these lost revenues. (13)

This Note will explore the issue of sales and use taxes on e-commerce. Part II will define sales and use taxes and explain why states aim to require e-retailers to collect use taxes. (14) Part III will analyze the relevant constitutional issues, specifically, Quill Corp. v. North Dakota (15) and its substantial nexus requirement. (16) Part IV will discuss of the role of Congress in e-commerce taxation. (17) Part V will present the arguments of consumers, Main Street retailers, remote sellers, and the states. (18) Finally, Part VI will present an argument as to why states should not require remote sellers to collect and remit use taxes until states simplify the current sales and use tax system. (19)


Certain state and local governments impose sales taxes on sales or leases of tangible personal property and certain services. (20) The primary function of the sales tax is to generate revenue for the taxing jurisdiction. (21) Sales taxes became widely utilized in response to the Great Depression, and Mississippi's legislature was the first to impose a sales tax in 1932. (22) Today, there are over 7,600 state and local governments out of approximately 30,000 jurisdictions that impose sales taxes. (23) Each taxing jurisdiction has its own tax code, containing varying tax rates, definitions and classifications of taxable and exempt items, and tax compliance procedures, all of which may change throughout the year. (24) Unlike the remittance of income taxes, individuals and entities are not responsible for remitting sales taxes to the government. (25) Rather, the seller bears the administrative burden of calculating, collecting, and recording the sales tax on each transaction and remitting such taxes to the appropriate government entity on a periodic basis. (26)

When a buyer purchases goods from a remote seller, the buyer's state or locality imposes a use tax. (27) States and localities impose use taxes to discourage purchases that are not subject to the sales tax. (28) These government entities require remote sellers to collect and remit the use tax, provided that the remote seller maintains a physical presence within the taxing authority's jurisdiction. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.