Montgomery: Retailing and Internet Sales Tax Essay

T.J. Montgomery
BUS 210
Topic Paper
4 April 2015
Topic 8: Should States be allowed to enact laws imposing state level sales taxes on online purchases? Many states do have such laws and there is an ongoing debate over whether it is fair – especially in light of how sales taxes are charged at actual retail stores – or is an impermissible infringement on interstate commerce that should be only regulated by Congress. With technology becoming more and more advanced as time goes by, people are using it more than ever. It has made it easier to do many things including shopping. Many states have made it a priority to be able to tax these transactions online. Until recently, if someone was interested in a product they could go into a store to try out the product to decide if they want it then go home and purchase the product off the Internet to avoid paying sales tax. States may impose sales and use taxes on Internet transactions, even when the seller is out of state. If the seller does not reside in the state of the purchaser then the seller is not forced to collect the tax or submit it to the state. Although the purchaser is still responsible for reporting and paying the tax but most of the time the tax is not reported or paid. It is incredibly difficult and complicated to be able to tax an Internet sale especially if the purchaser and the seller reside in different states.

The first time these issues were addressed was in 1992 with the Quill Corp. v. North Dakota case. Quill Corporation was a company, who sells office equipment, that resided in Delaware but had offices and warehouses in Illinois, California, and Georgia. There is no property owned in North Dakota nor do any of the employees work or reside within its jurisdiction. “Its annual national sales exceed $200,000,000 of which almost $1,000,000 are made to about 3,000 customers in North Dakota” (Quill Corp. v. North Dakota, 504 U.S. 298 (1992).). The company delivers the merchandise through the mail or other type of carrier from out of state locations (Quill Corp. v. North Dakota, 504 U.S. 298 (1992)). North Dakota requires “every person who engages in regular or systematic solicitation of a consumer market in the state”. Meaning that anyone who does business within the state’s jurisdiction must pay a tax on the products or services they sell, even if they do not have any property or employees in North Dakota. The Supreme Court sided with Quill, based on the fact that a taxpayer must have a physical presence in a state to be able to require collection of sales tax for purchases made by in-state customers (Important Tax Cases: Quill Corp. v. North Dakota and the Physical Presence Rule). This set a foundation for how taxes are paid from out-of-state online transactions, even when the Internet was unknown at that time.

Forty-five of the fifty states in the United States have laws that require their residents to pay a use tax (or Amazon tax). According to Wikipedia, a use tax is a type of excise tax levied in the United States by numerous state governments. It is assessed upon tangible personal property purchased by a resident of the assessing state for use, storage or consumption in that state, regardless of where the purchase takes place. Of these forty-five states with a use tax only about 1.6 percent of the taxpayers actually pay the tax. In a NPR article the author asks a representative of that 1.6 percent to explain how he pays the tax. The man tells him that it is a lot of trouble and you have to go through all of your receipts throughout the year and add up all of his online purchases then take the percentage to figure out how much he owes the state of Connecticut for his purchases. This is the reason why only 1.6 percent of the people pay their use taxes, its just too complicated and time consuming to find them all. In states with sales tax people who buy products from another state should pay a Use Tax. It is the individual’s

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Montgomery: Retailing and Internet Sales Tax Essay

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