Page 2 o 9
Sales Tax Legislation Beyond Ecommerce
Though the U.S. Supreme Court determined that the nature o Quill Corp’s activitieswithin North Dakota meant that the imposition o sales tax on the company was air,requiring collection and remittance o the tax created an “undue burden” on interstatecommerce. The Court fndings highlight the complex burden o ensuring constitu-tionality rom the perspective o the Commerce Clause o the U.S. Constitution (notinterering with interstate commerce), and the Due Process Clause (ensuring the un-damental airness o government), particularly when they run counter to one another.For example, “...while a state may, consistent with the Due Process Clause, have theauthority to tax a particular taxpayer, imposition o the tax may nonetheless violatethe Commerce Clause.” In other words, companies engaged in interstate commercecan be required to charge sales tax, as long as it does not substantially interere withthat commerce.It is this complexity, combined with rapid change at the local, state, and ederal levelsthat poses problems or remote sellers, particularly ecommerce.Defnitions o nexus between states are oten so incongruous that many businessesunderstandably throw up their hands and assume that they don’t have to collect andremit sales tax in municipalities in which they don’t have physical presence. By doingso they unknowingly increase their risk o auditsand associated penalties.
What you don’t know can hurt you: nexus
To address these complexities, the U.S. Supreme Court clarifed that only those com-panies with “signifcant physical presence,” or “nexus” in a state would be requiredto collect sales tax there. This so-called “bright line” defnition established physicalnexus as the prevailing standard by which sales tax requirements or remote sellerswere measured. In eect, this resulted in an assumed tax exemption or remote sellerswithout this physical presence.This assumption is aulty and here’s why:State taxing authorities are orever defning and redefning the activities that causenexus that are not explicitly mentioned in Quill. See Nexus Quiz sidebar.To compound the conusion, so-called “Home Rule” states such as Colorado, Idaho, andLouisiana, can delegate taxing authority (including rulemaking regarding nexus) tolocal jurisdictions.
NEXUS QUIZ:Does Your CompanyPotentially Owe Sales Tax?
Your ecommerce business might havenexus in a particular state i you answeryes to one or more o the questionsbelow:1. Do you have traveling salespeople that physically enter thestate to conduct business?2. Do you utilize contract labor inthe state to aid in your businesseort?3. Do you have marketing personneland/or other company representa-tives in the state, who conductbusiness on your behal?4. Do you own or lease any real orpersonal property located in thestate?5. Do you participate in any tradeshows or exhibits that promoteyour products or services in thestate?