Taxing Internet Sales

[Andrew D]

Right now the states have no way to force the internet marketers to collect local sales taxes because they have no jurisdiction over them (as they are not located in the state).

But physical presence in a State is not necessary for personal jurisdiction. On the contrary, if a company in State A sells products to customers in State B, that is generally enough to give State B personal jurisdiction over that company, at least with respect to claims arising out of those sales transactions. As US Legal puts it:

Specific personal jurisdiction refers to jurisdiction based on a person's minimum contacts with the forum state when the claim arises out of or is related to those contacts. Generally, the requirement of minimum contacts means that the defendant has to have taken actions that were purposefully directed towards the forum state. Such actions may include, among others, selling goods in the state, being incorporated in the state, visiting the state, or bringing property in the state.

(Emphasis added.)

All sales tax liability necessarily arises out of the sales transaction(s) being taxed. So State B's exercising personal jurisdiction over the company in State A that sells products to customers in State B should present no difficulties.

[Rick]

If it is already legal then is this legislation not redundant?

[Big RR]

Andrew--you posted

Specific personal jurisdiction refers to jurisdiction based on a person's minimum contacts with the forum state when the claim arises out of or is related to those contacts. Generally, the requirement of minimum contacts means that the defendant has to have taken actions that were purposefully directed towards the forum state. Such actions may include, among others, selling goods in the state, being incorporated in the state, visiting the state, or bringing property in the state.

and emphasized "selling goods in the state"; but that's the quandary, isn't it--where does the sale take place? The seller has not entered the state nor even contacted buyers there; the buyers have to come to his "place of business" (on the web). The seller's domicile is not in the state, nor is his place of business--how is he selling goods in the state?

Indeed, many internet sales contracts specify that the goods are shipped FOB point of origin (the products are bought in the seller's state, not the buyer's), although they will arrange to ship the buyer's good to the buyer (usually at the buyer's expense). Where is the contact required for the personal jurisdiction--I don't see it.

Rick--

I already mentioned this above, but, If you cross a border to physically buy a product you will pay a sales tax. It will be paid at the location of purchase yes but one will be paid (why you would prefer to pay for shipping after that is beyond me but many things are).

No, that is not the case, at least with states I am familiar with. If you cross a border to buy a product and have it shipped out of state, you will not owe sales tax at the point of purchase (although you might owe a use tax in the destination state). This is commonly done for big ticket items, like jewelry (indeed, you might recall that Leona Helmsley was charged with trying to avoid tax payments on jewelry bought in NYC and then shipping empty boxes out of state (I believe she may have even gone to jail for this tax fraud).

edited to add: BTW, I think the USSC came down with a case on catalog sales and ruled that even sending catalogs into the state did not meet the required minimum contacts for due process, although it was a while ago. And I also recall several cases that stated that contact with residents of a state by mail or common carrier did not meet the minimum contacts as well. If I get a chance, I'll try to google them.

[Rick]

I guess I have no idea what you are talking about then so I leave it for smarter folk than I to answer yer question.

However if Leona got popped then there is evidently something already on the books to cover this it would seem to me.

But hey that's just me and I'm an idiot...

[Crackpot]

The way sides were taken in this discussion seems rather odd

[Rick]

I don't have a side I was just trying and then failed to answer a question.

Cabelas was where I did most of my online shopping and now I have to pay taxes anyway. If it comes back here I don't mind one bit, I always try to buy local 1st anyway.

Guin buys lots and lots of books she'll get to the bottom of it...

[Big RR]

I'll try one more time; in NY (and other states I am familiar with) one can go into a B&M store and buy merchandise. If the customer takes the merchandise with him/her, (s)he will have to pay NY sales tax; however, if the retailer ships the purchased merchandise to the customer's out of state address (and does not give it to the customer at the time of sale), the retailer will not collect NY sales tax because it is being shipped out of state (of course, the customer will have to pay (use) tax to his home state, as they do with internet sales). So if I, as a NJ resident, go to a NY retailer and buy a $5,000 bracelet, I can have them ship it to me in NJ and will not have to pay any sales tax in NY. Now the one exception is if the retailer has a store in the state it is being shipped to (which is why you pay taxes to Cabelas for online shopping).

Leona Helmsley got into trouble for perverting this, asking the retailer to give her the jewelry and then to ship an empty box out of state (so she could claim she did not take delivery in NY). That's what she was caught doing.

Crackpot--I don't have a side either; Indeed, I think the sales tax should be paid on internet sales. I'm just not certain that the current bill could pass constitutional muster (although it's been a long time since the USSC ruled on anything like this, so who knows what the court would do). Personally, I'd rather see the federal government collect a single tax on all internet (and similar) sales and distribute it to the states. But that comes with its own problems, as I alluded to above.

[Rick]

http://www.salestaxinstitute.com/resour ... s-tax-faqs

[Rick]

I will say it appears as though Amazon is the company that was the "cause" (loosely since this issue has been tossed around here in AR for that last couple of years, internet tax revenue).

They have "distribution centers" in many states that I guess don't fit the definition of nexus (see link above) or this would prolly be a nonissue.

Big RR I know this dosen't answer yer question but I believe this internet tax thang has been a while coming it has just finally bloomed.

[Big RR]

From what I've heard of Amazon, they would like to build distribution centers in all 50 states to allow same day/overnight delivery; if that's the case, they would have the contacts needed, so they have endorsed the recent bill.

[Andrew D]

As I understand it, what the pending bill would do is extend the existing Streamlined Sales and Use Tax Agreement to cover internet sales. That does not present a constitutional issue of jurisdiction at all.

California would require sellers in California to collect New York sales tax from purchasers in New York, because New York would reciprocally require sellers in New York to collect California sales tax from purchasers in California. There would be no jurisdictional issue, because the requirement imposed on sellers in California would be imposed by California -- the State of the seller's residence.

Indeed, it seems to me that a principal purpose of the proposed legislation is precisely to render moot the issue raised above:

For example, can the federal government give the state courts jurisdiction over someone who does not have a presence in the state? And what happens if the person ignores the court saying it has no jurisdiction; are we setting up a conflict of laws problem if the home state refuses to recognize the judgment of the foreign state's court due to a lack of jurisdiction (much as we saw with Reno divorces in the 50s)? I think enforcement would be a nightmare.

If California imposes the requirement -- to collect New York sales tax from purchasers in New York -- on sellers in California, then California self-evidently has personal jurisdiction over the sellers in California, and there is no jurisdiction problem or conflict-of-laws problem. California would simply be using California courts to enforce California law against a California resident.

People interested in the constitutional jurisdictional question should take a look at:

On general jurisdiction:
Gator.com Corp. v. L.L. Bean, Inc., 341 F.3d 1072, 1079-1080 (9th Cir. 2003) and the cases cited there.

On specific jurisdiction:
Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 417-419 (9th Cir. 1997) and the cases cited there.

But because the proposed legislation would moot the constitutional jurisdictional question -- which may explain why I have found no constitutional objection raised to the proposed legislation -- I see no reason to pursue that question further.

[Big RR]

Andrew--I haven't read much about the proposed legislation except for small newspaper stories; if it is structured that way, then I agree that the jurisdiction issue would be moot. thanks for the information.

But why is the federal government involved at all; shouldn't this be an issue for the states to agree on between themselves? I guess perhaps because interstate commerce is involved, but I'm not certain.

[Andrew D]

The US government is involved, because States cannot enter into agreements with each other unless Congress approves:

No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State ....

(U.S. Const., Art. I, Sec. 10.)

[Joe Guy]

The US government is involved, because States cannot enter into agreements with each other unless Congress approves:

No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State ....

(U.S. Const., Art. I, Sec. 10.)

How would two or more states entering an agreement to start collecting sales tax encroach on the authority of the U.S. government?

From what I've read on the subject (very little) Article 1, Section 10 of the Constitution is there to prevent states from joining, gaining power and breaking away from the United States.

[Andrew D]

That may well have been its principal purpose, Joe Guy, but it says what it says: Agreements between or among States require -- except, the Supreme Court has held, agreements as to trivial matters -- Congress's consent.

It is not uncommon for a constitutional provision to extend beyond its principal purpose. The Fourteenth Amendment was principally intended to protect newly freed slaves, but its reach extends much further.

[Gob]

I buy books from Amazon UK, via their servers in Seattle, Washington, United States, the books are shipped from Jersey, a tax haven in Europe.

[rubato]

I thought that the underlying law on this was settled a long time ago. Mail-order sales companies were legally obliged to collect and remit sales taxes for items sold to a state with sales tax but it was not practical to enforce and so was often ignored. The total volume of such sales was also probably not close to the amount of online sales.

At any rate it is a good thing, and necessary to keep the playing field level. It isn't fair that on online business can start out with an automatic 8 - 10% advantage on price.

yrs,
rubato

[Lord Jim]

At any rate it is a good thing,

Regardless of the relative merits of this objectively under the best of circumstances...

It would take a moron who possessed not even the meanest of intelligence, to fail to grasp how idiotic it would be to levy additional consumption taxes on a society where the primary problem is a lack of consumer demand...

[Jarlaxle]

I think it is a good idea. Far better then the other proposed methods of taxing Internet sales I've been privy to. I used to be against such taxes until I saw how people were avoiding buying things at brick and mortar stores (even they still use them to window shop). Largely just to avoid sales tax. Such practice is counterproductive to creating and maintaining jobs

That's far from the only reason people buy online! Offhand, I just bought a safety jacket & helmet online. The jacket usually goes for $150 or so...I paid $99. The helmet retails for $130, I have seen it locally for $100. I paid $45. Sales tax simply wasn't a consideration.

[Jarlaxle]

Last time I checked, it was necessary for any merchant engaged in Internet sales to be, you know, "computer literate." Tracking all sales to a particular state (with Zip Codes), and accumulating the sales would be child's play. The Feds could either act as a distributor of the revenues through a centralized account, or distribute the payment instructions for,each taxing body. I understand,that more than 50 would be involved, what with territories, Indian tribes, and whatnot.

Jim, do you dispute that these taxes are payable? Or that most people don't pat tHem? If the taxes are too high, or the states are inefficient,that's another matter.

What a pile. The relevant number is 9000. That is nine THOUSAND DIFFERENT sales tax requirements in the country! States, counties, cities, etc...it's simply not possible for a mom & pop business to do it. Amazon doesn't care...they have a full-time accounting and IT staff to handle it. Walmart doesn't care...they already pay the taxes, in most cases. Both are thrilled, in fact: it will drive their competition out of business.