1. 1 TAXATION OF E-COMMERCE n State sales tax-tax imposed by the state on the sale or lease of tangible personal property –for goods purchased for use in the same state –collected by the vendor from the buyer or leasee at the time and place of purchase

2. 2 TAXATION OF E-COMMERCE n Use tax- a tax imposed by a state on buyers who purchase goods out-of-state for use within the state –it prevents consumers from avoiding sales tax by purchasing goods out-of- state for use within the state –paid by the buyer

3. 3 TAXATION OF E-COMMERCE n State’s taxing jurisdiction- “nexus” or contacts that form the legal basis for a state to impose taxes on an out-of-state business n Taxing nexus is limited by the Due Process and Commerce clauses of the United States Constitution

4. 4 TAXATION OF E-COMMERCE n Due Process Clause- requires some minimum contacts between the taxing state and the person or property it seeks to tax n Commerce Clause - requires a “substantial nexus” with the taxing state [Quill Corp. v. North Dakota, 504 U. S. 298 (1992)]

5. 5 TAXATION OF E-COMMERCE n Due Process- an out-of-state business that purposefully avails itself of the benefits of a state’s economic market may subject itself to the state’s taxing jurisdiction even without a physical presence in the state –similar judicial analysis as jurisdiction cases

6. 6 TAXATION OF E-COMMERCE n Commerce Clause - 4 part test –1) need a substantial nexus with the taxing state –2) tax must be fairly apportioned –3) tax cannot discriminate against interstate commerce –4) tax must be fairly related to the services provided by the state

7. 7 TAXATION OF E-COMMERCE –QUILL CORP. v NORTH DAKOTA –COMMERCE CLAUSE REQUIRES A SELLER HAVE A PHYSICAL PRESENCE IN THE TAXING STATE BEFORE IT MAY IMPOSE A DUTY TO COLLECT A USE TAX

8. 8 TAXATION OF E-COMMMERCE n QUILL CORP. v. NORTH DAKOTA –A “SLIGHT PRESENCE” IS NOT ENOUGH TO CONFER TAXING JURISDICTION ON THE STATE UNDER THE COMMERCE CLAUSE –A “SUBSTANTIAL NEXUS” IS REQUIRED –PHYSICAL PRESENCE NEED NOT BE SUBSTANTIAL, BUT MUST BE MORE THAN SLIGHT

9. 9 TAXATION OF E-COMMERCE n Tax Nexus by attribution - an out-of- state business has activities by agents, sales representatives or independent contractors n Market-in State - do the activities of the agents establish a market in-state? n Affiliation theory - the activities of a subsidiary are imputed to the parent

10. 10 TAXATION OF E-COMMERCE n Nexus and Internet Service Providers - –does nexus exist based on a point of presence site (POP) in a taxing state? –does a POP site constitute a physical presence in the taxing state?

11. 11 Taxation of E-COMMERCE n The Internet Tax Freedom Act (1998) –moratorium on Internet taxes for the next five years –created a 19 member Advisory Commission on Electronic Commerce (ACEC) to study and report to Congress by April 2000

12. 12 Taxation of E-Commerce –New Developments- –Sen. JohnMcCain’s bill - to amend ITFA and make current moratorium on sales and use tax on electronic commerce permanent –Gov. Leavitt (R-Utah) - a proposed “zero- burden program”- a third-party calculates the tax where the goods are delivered and charge the buyer’s credit card