Academic journal article Journal of Legal, Ethical and Regulatory Issues

Internet Sales Use Tax: A Story of Evolution

Academic journal article Journal of Legal, Ethical and Regulatory Issues

Internet Sales Use Tax: A Story of Evolution

Article excerpt


The primary topic of this paper pertains to the issue of whether or not the law provides a state legal authority to collect use taxes directly from remote Internet retailers located outside the boundaries or jurisdiction of the customer destination state for Internet sales of tangible personal property. The short answer is that states generally are not able to collect use taxes beyond their own borders from out-of-state remote Internet vendors because of U.S. Supreme Court interpretations of the Interstate Commerce Clause of the U.S. Constitution.

Interstate Commerce Clause

The Constitutional concern to overcome is that of placing a substantial burden on interstate commerce, considering there are approximately 9600 state sales/use tax jurisdictions among the states of the United States(Bibb, 1959; Raymond Motor Transportation, 1978 Quill Corp., 1992).A second factor is determining the minimum physical nexus or relationship in the business transaction required between the customer state and the remote Internet vendor located outside the jurisdiction of the customer state (International Shoe, 1945; National Bellas Hess ,1967). Finally, there is the question of U.S. Congress participation in devising legislation as to collecting use taxes from beyond the boundaries of the customer state, as implied by the Supreme Court since Congress has the sole power to regulate interstate commerce under the Constitution, but continues to be silent on this matter (Quill Corp., Volti, 2010).

Additional Constitutional issues include the Due Process Clause, Federalism, and tax, duty, and import and export clauses. Also addressed in this paper are relevant legal principles relating to developing state legislative actions, bills, and laws, federal legislative bills and regulations, public/private alliance agreements, interstate agreements, and court actions.

Theory of Change

During the past several decades an often overlooked but compelling influence on these issues is the dramatic impact brought forth by the speed and force of societal change from advances in technology, data retrieval, communication, and business practices, along with changes in the political climate (Volti, 2010). The goal is to conduct a review of the important change factors in developing an understanding of the available options of state sales and use tax collections from out-of-state vendors in Internet sales.

In the context of change, advances in technology and communication even in the last several years have been remarkable (Volti, 2010).These advances and how they apply to use tax present a legal conundrum as to how to define physical presence within a state and the underpinnings of a sale. This paper shall also follow the journey of (i) states' need for additional revenue; (ii) the possible need to level the "playing field" between Internet businesses and local small and large businesses as to sales and use taxes requirements; (iii) the necessity of local autonomy of states in attempting the continuing grappling to resolve these issues; and (iv) political interests with their own history of changes that interrelate with all these change factors. Finally, there are primary and secondary stakeholders-including individuals, groups, organizations, government entities, communities, and the list continues-that are influenced by the above listed changes, and they also play a significant role influencing these changes. Teaching Perspectives

The presentation of this paper is designed to offer supplemental materials in preparation for chapters incorporating Constitutional Law, administrative law, cyber law, and consumer law for instructors of second or third year university students taking a course in Legal Environment of Business. The themes are multi-disciplinary and suitable for instruction of (i) business law, various levels of accounting and auditing courses, and business and society; (ii) political science courses, such as Constitutional Law; (iii) public administration courses, such as administrative law and public policy; and (iv) economics courses, such as urban and regional economics and public finance. …

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