The U.S. Constitution protects interstate commerce from discriminatory state taxes.1 Yet the growing e-commerce market and potential revenue from sales and use taxes prompts questions regarding expectations for online retailers.
The 2015 Remote Transactions Parity Act, which requires out-of-state online retailers to collect sales and use taxes from their customers, would undermine state sovereignty, place an unreasonable burden on online retailers and reduce healthy tax competition among the states. The steep administrative and implementation costs of the act, in addition to the possible damage to e-commerce, are greater than the potential uncollected revenue from online sales taxes.
Congress Seeks to Expand the Definition of Nexus. The U.S. Supreme Court’s 1992 ruling in Quill v. North Dakota found that retailers are only subject to a state’s sales tax when the retailer has a physical presence, or “nexus,” in the same state as the buyer.2 The court’s ruling rests on the Interstate Commerce Clause of the U.S. Constitution, but its reach could be extended by new legislation because the decision allows Congress to expand the definition of nexus.3
In 2011, three bills were introduced in Congress requiring online sellers to collect state sales taxes. In 2013, Representative Steve Womack (R-Ark.) and Senator Mike Enzi (R-Wyo.) introduced the Marketplace Fairness Act (MFA) in an attempt to “level the playing field” between remote sellers and brick-and-mortar businesses. The bill passed the Senate but not the House. It was reintroduced in March 2015 by Sen. Enzi.