In 2013, new legal theories emerged in Illinois and Colorado about whether states could tax online sales. The Illinois Supreme Court said a law about taxing online sales was not allowed under a federal law called the Internet Tax Freedom Act. In Colorado, a federal court said it didn’t have the power to decide a case about a law requiring online stores to give customer information to the state. These cases are important because they create new ways to argue about whether states can tax online sales. They might allow courts to decide these cases without using the old rules from a 1992 Supreme Court case. Quill Corp., an office supply company, didn’t have a physical presence in North Dakota but sold products there. North Dakota wanted Quill to collect and remit use taxes on its sales, but the U.S. Supreme Court said no. The Court decided that Quill didn’t have enough of a connection to North Dakota for the state to make it collect taxes. This decision created two tests for determining if a state can make a remote seller collect taxes. The first test is about whether the seller has purposely directed its efforts toward a state to solicit business. If so, it’s likely to satisfy this test. The Quill case created a rule that says a company has to have a physical presence in a state before that state can make them collect sales taxes. This rule was originally for mail-order sales, but it also applies to online retailers. The Court knew this would affect how much money states would get from taxes, but said it was up to Congress to make a national rule for all states. Even though Congress was asked to do something about this 20 years ago, they haven’t done anything yet. States are passing laws to try to collect taxes from online sales. One type of law is the âclick-through nexusâ law, which says that if a company has a business arrangement with someone in the state to refer customers to their website, they have to collect and pay taxes on sales to people in that state. Some states, like New York and Illinois, have passed these laws. Colorado has a different law that requires companies with a certain amount of sales to report those sales to the state. These laws have been challenged in court, leading to legal cases. One of these cases is called the Performance Marketing case, which is about Illinoisâ click-through nexus law. This law changed the definition of a retailer in Illinois to include companies with a contract with someone in the state who refers customers to their website. A company in Illinois passed a law saying that out-of-state sellers who have referral deals with Illinois residents have to collect use tax on sales to Illinois customers. A company challenged the law, saying it violated the Constitution and was preempted by another law. The court only ruled that the law was preempted, not unconstitutional. One judge said they should have also decided if it violated the Constitution. Another court in New York had a similar case, which could have led to the Supreme Court reviewing the law, but the Illinois court didn’t take the opportunity to add their opinion to the debate. The Illinois Supreme Court ruled that a law in Illinois that taxed online performance marketing arrangements was unfair because it didn’t also tax similar arrangements in print and broadcast media. This violated a federal law called the Internet Tax Freedom Act (ITFA) which says that taxes on online commerce can’t be different from taxes on other types of commerce. The court said that the Illinois law was discriminatory and therefore, it couldn’t be enforced. However, if the ITFA isn’t renewed by Congress, the Illinois law will come back into effect. The ITFA, a law that stops taxes on internet services, has been extended three times and might be extended again. If it does get extended, the argument against discriminatory taxation in Performance Marketing analysis could be important in legal challenges to “click-through” nexus laws. The Colorado law requires remote sellers with more than $100,000 in gross sales to Colorado residents to provide transactional notices, send annual purchase summaries, and report Colorado purchaser information to the Department of Revenue. The Direct Marketing Association sued the state, claiming the law violated the Commerce Clause, but the 10th Circuit Court dismissed the case, citing the Tax Injunction Act, which says federal courts can’t stop state tax collection if there’s a quick way to address the issue in the state’s courts. The 10th Circuit Court said that the Tax Injunction Act applies to lawsuits trying to stop states from collecting taxes, even if the lawsuit is about reporting requirements. They also said that the Direct Marketing Association could have resolved their issue in Coloradoâs tax protest procedures. This means that challenges to laws like Coloradoâs reporting requirement have to go through state courts instead of federal courts. This kind of legal fight will continue as states try to collect taxes from online sales until the Supreme Court reviews the Quill case. The Internet Tax Freedom Act and the Tax Injunction Act are laws that deal with taxes on internet sales. The case Quill v. North Dakota established that states can only tax businesses if they have a physical presence in the state. This decision was based on a previous case called National Bellas Hess. However, with the rise of internet sales, some people think this rule should be reconsidered. Congress now has the power to decide how states can tax internet sales. Some states have laws that require out-of-state internet retailers to collect taxes if they have contracts with people in the state. These laws are similar to New York’s Amazon Law but have some differences. For example, Colorado has its own version of the law. Florida has tried to pass a similar law, but it hasn’t happened yet. In Illinois, there was a court case about this law, and the court decided that it was legal. The court also mentioned a federal law that prevents states from taxing internet access. The federal law has been around since 1998 and has been extended several times. There’s currently a proposal to make the ban on internet access taxes permanent. In a different court case, the court had to consider whether the federal law applied, and they decided that it did. The court cited previous cases and quotes to support its decision. The lawyer, Steven M. Hogan, is an expert in tax and commercial law. This article was written on behalf of the Tax Law Section. It’s all about a court case and legal arguments.
Source: https://www.floridabar.org/the-florida-bar-journal/internet-taxes-on-trial-new-strategies-for-litigating-remote-seller-sales-and-use-tax-cases/
Leave a Reply