Taxation in the US (2022): State and local taxation: Sales taxes (Part Four) (Texas thru Wyoming) + Internet transactions

Law School

Internet transactions.

Through the Internet's history, purchases made over the Internet within the United States have generally been exempt from sales tax, as courts have followed the Supreme Court ruling from Quill Corporation v North Dakota (1992) that a state may only collect sales tax from a business selling products over the Internet if that entity has a physical location in the state. This decision was based on the Dormant Commerce Clause that prevents states from interfering in interstate commerce, unless granted that authority by Congress. Some retailers, like Amazon.com, had voluntarily started collecting sales tax on purchases even from states where they do not have a physical presence. Many states also have a line item on their tax returns allowing the payment of state sales tax when state income tax is filed by an individual or corporation.

In May 2013, the Senate passed the Marketplace Fairness Act, which would allow states to collect sales taxes for purchases made online. The legislation would give States the tools to collect sales taxes on cross-State sales transactions. The bill received support from retailers including Walmart and Amazon.com, who have claimed that it is unfair not to require online merchants to collect sales taxes. Groups like the National Retail Federation and the Retail Industry Leaders Association have said that requiring online vendors to collect sales taxes will help make brick and mortar retailers more competitive. However, U.S. House Speaker John Boehner stated that it would be difficult to implement such a system due to varying tax codes in different states. The National Taxpayers Union (NTU) spoke out against the bill, along with The Heritage Foundation, which indicated that it would harm Internet commerce and small businesses. Online retailer eBay believes it will hurt some of its sellers and lobbied Congress to exempt businesses that have less than $10 million in out-of-state sales or fewer than 50 employees. The Act failed to pass in either the 112th or 113th Congress.

In October 2017, the state of South Dakota petitioned the Supreme Court to abrogate the Quill decision, citing the ease that online retailers can now determine the location and appropriate sales tax for purchases compared to the state of the Internet in 1992. Several online retailers, including Wayfair, Overstock.com and Newegg, submitted petitions in opposition to South Dakota, stating that the impact will be difficult on small and medium-sized retailers that would not have ease of access to these tools. In January 2018, the Supreme Court agreed to hear the case South Dakota v Wayfair Incorporated in its 2018 term. Oral arguments were heard by the Supreme Court on April 17, 2018. During oral arguments South Dakota's attorney general, Marty Jackley, and the U.S. Solicitor General's representative, Malcolm L Stewart, both posited that if the Court overturns the Quill decision that the ruling must be retroactive and not merely prospective. Several Justices were concerned about the burden that back taxes and ongoing sales and use tax compliance would place on small businesses.

On June 21, 2018 the Supreme Court held that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. The court's 5–4 majority decision overturned Quill, ruling that the physical presence rule decided by Quill was 'unsound and incorrect' in the current age of Internet services.

Value added tax.

There is no value added tax in the United States. There have been proposals to replace some Federal taxes with a value added tax.

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