Attorneys General from Montana, Alaska, and Oregon have spoken out together against the Marketplace Fairness Act, saying that it’s unconstitutional “because it violates the commerce and due process clauses of the U.S. Constitution.” These three states, along with New Hampshire, currently have no state sales tax. They don’t believe it’s right for Congress to create a law they oppose and have through many ballot and legislative initiatives, says Montana Attorney General Tim Fox. Alaska does have a few jurisdictions in tourism centers with their own sales taxes, but the other states have no sales tax at all. To understand the logic of the Attorneys General and for business owners to decide for themselves if they agree with the Attorneys General, business owners first need to understand the foundations of applying due process and commerce clause to sales and use tax.

Complete Auto Transit, Inc. v. Brady (430 U.S. 274, 1977)- The most important case to understand regarding the effects of the Commerce Clause on sales tax, this case was between the state of Mississippi and a car transport company. The Supreme Court ruled in favor of Mississippi against Complete Auto. Complete Auto was the final step in transporting new cars to dealerships from the manufacturer but it was all within the borders of Mississippi. Although Complete Auto operated as part of interstate commerce, the Supreme Court ruled that they met all four parts of a test that applies the Commerce Clause: Substantial nexus where the relationship between the state and the business is clear and the business has a substantial economic presence. Sales taxes imposed must not create discrimination between interstate and intrastate taxes. Taxes are fairly apportioned to the portion of the transaction within the state The business must have a fair relationship to services provided by the state. This case set a precedent for other businesses in all states. If your business meets this four-pronged test, the Commerce Clause applies and your business might be required to collect sales tax. Quill Corporation vs. North Dakota (504 U.S. 298, 1992).

The Quill Corporation was a mail-order company that was based outside of North Dakota. They used floppy disks for catalogs instead of print catalogs. They didn’t employ anyone inside of the state of North Dakota but the State of North Dakota believed Quill Corp needed to collect sales tax because of their connection with customers in the state. They argued that the company was benefiting from the state. In a ruling from the Supreme Court, the Justices ruled that Quill Corp had met the requirements of due process but that they did not meet the requirements of the commerce clause, which are more stringent in rules of nexus, and were not required to collect and remit sales tax. This case set a precedent that a business must meet both due process and the commerce clause to be subject to sales tax, although the commerce clause was deemed more important by the Court. The objections from the Attorneys General add yet another interesting factor to the controversy on internet sales tax. We’re sure the story isn’t over yet.


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