Recent Developments in e-Business Sales Tax

• In Event: Government/NPO and Other Accounting Issues

Abstract

This paper deals with the tax problems arising from e-business. It points out that nowadays e-business falls into the realm of interstate commerce. It concerns the problem as to who should be responsible for collecting sales tax – the seller or the buyer. It involves the requirement of “due process” under the Constitution of the United States. An out-of-state seller is not required to collect sales tax from the in-state buyers unless there is a minimum connection between the seller and the state. This paper investigates judiciary decisions in the past and finds that “physical presence” was the principle to satisfy the requirement of “due process.” To constitute physical presence the seller must maintain employees or a place of business in the state. However, in recent years many online sellers do not need to maintain physical presence in a state and still can derive profit from it. The typical examples are website link and Internet business and in 2008 the New York State legislature enacted the so called “Amazon Tax Law” that requires a remote online retailer to collect sales tax from buyers in New York if the retailer has affiliates in New York that put the retailer’s website link on the affiliates’ websites so customers could order merchandise from the retailer by using this link. The principle of “physical presence” is changing to the concept of “economic nexus.” As long as an out-of-seller receives benefits from the state it is required to collect sales tax from the in-state buyers. While Amazon immediately filed lawsuit challenging the constitutionality of the “Amazon Tax Law,” it started to collect sales tax from its New York customers. At least ten states have since passed similar law. In response, Amazon terminated contracts of its affiliates in several states and yet started to collect sales tax in some other states. This paper investigates possible reasons for the strategy of Amazon. This paper further offers some visions concerning the new development of e-business taxation in the near future.

Authors

• James Yang, Montclair State University

• Leonard Lauricella, Montclair State University

• Wing Poon, Montclair State University