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Sat Mar 10 2018 08:44:53

Online Sales Tax Prohibited by the Constitution

By: Reader

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Dear Ina,
I can not see how the internet sales tax issues keeps coming up??? Article 1 Section 9 of the US Constitution very clearly prohibits it:

No Tax or Duty shall be laid on Articles exported from any State.

I don't think it could be any clearer or simpler, yet lawyers think they can weasle word around this to the point that words have no meaning.
Martin




Comments (24) | Permalink

Readers Comments

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: Just Plain Irritated This user has validated their user name.

Sat Mar 10 11:47:04 2018

This is 100% correct, word for word.

''No Tax or Duty shall be laid on Articles exported from any State.''  

We had just won a war against King George of England over taxes and various other controls forced on colonists.

When our Government was set up by the founders, this was an important issue and stated clearly in the US Constitution.

Thanks so much for pointing that out Martin.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: sellerchick This user has validated their user name.

Sat Mar 10 12:01:28 2018

Taxation without representation!!

The problem is most online sellers will never be wealthy enough to leave the private sector to go into politics. And for some reason, one would think Bezos the richest man (on paper) in the world would have kicked this all the way to the Supreme Court instead of just bending over and taking it.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: RL15 This user has validated their user name.

Sat Mar 10 12:41:11 2018

"No Tax or Duty shall be laid on Articles exported from any State"

Export means shipped from.

The tax's are for sales imported.

2 completely different things.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

This user has validated their user name. by: Rexford

Sat Mar 10 13:05:39 2018

"yet lawyers think they can weasle word around this to the point that words have no meaning."

Sounds like an eBay User Agreement.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

This user has validated their user name. by: Marie

Sat Mar 10 17:36:34 2018

Let's say you are shipping from Arizona to be received by your customer in New York.

You are EXPORTING form Arizona [no tax]
You are IMPORTING into New York.

Therefore the clause in the constitution bears not importance to what some states are trying to accomplish with sales tax.

Definitions from Webster's Dictionary.

Export: to carry or send (something, such as a commodity) to some other place (such as another country)

Import:  to bring from a foreign or external source: such as a : to bring (something, such as merchandise) into a place or country from another country [or state, I added this.]
b : to transfer (files or data) from one format to another usually within a new file

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: Snapped This user has validated their user name.

Sun Mar 11 09:58:41 2018

Using Marie's example for clarity in the argument, without disagreement as to the difference between the definitions, there may still be a valid constitional aspect to be clarified in context:

Even though 'NY' might be considering the item subject to tax as being an import, that doesn't negate the fact it was an exported good from a state (AZ) to begin with.  Thus, at least from a Federal perspective, the constitional element would apply to preclude any Federal taxation; that taxing an exported good from a state is unconstitional.  However, this aspect doesn't necessarilly overrule a given State's taxation laws.  

After all, defining State v. Fed 'rights', and where those lines are drawn, have been at the heart of 'United States' constitional application arguments since conception.  To the point of civil war at their worst.

Question is; which 'State' gets to be considered as 'eligible'.

Consider how current tax laws are applied regardeing online sales - sellers (may) collect and remit sales taxes on goods sold to same state residents, but may not compel such to those sold to non-state residents.  

And of course the latter is the current question.  And of course, states that do have sales taxes usually have some stipulation requiring residents to declare and remit sales taxes on online purchases (e.g., imported) from elsewhere.  Annnnd, of course, that's not practically enforceable, as it requires taxpayer self accounting and 'honesty'.

Now 'technology' does in these days provide a path for a state to 'obtain' a buyers online transaction history, but the legality of doing so is thankfully not (yet) granted carte' blanche.  That's a whole different slippery slope....

However, there is a way for a given state to levy tax on any sales proceed if they wish to do so.  Not upon the buyer, but upon the seller (who nevertheless does indeed collect it from the buyer for remission).  The same way they do for an 'in store' purchase; at the point of sale.  

Consider our AZ buyer on a trip to Time's Square who buys a souvineer lady liberty statuette to take home for a kotchke.  AZ gets no 'sales tax' on that 'import'.  But NY does, from the seller.  Of what becomes an 'export', in practical application.

Don't know about you, but I've never been asked to provide any proof of out of state residence to avoid a state's sales tax when purchasing goods in store in another state.

In fact, in this example, AZ has no legal claim to 'sales tax' on the purchase.  It's also simply not practical - they'd have no way to even know it might be 'due'.

Thus, it makes no sense to levy sales tax based on buyer residence v. Seller location - Constitionality becomes a moot point, and as seen, is already practically bass-akwards in the in store application anyway.

So, to the concern about 'tax loss revenue potential' on online sales v. all the cumbersome accounting and remitting burden arguments from sellers should states want their pieces of each sale based on buyer residents, the only REAL practical, (not yet legal, but can easilly become so) solution is....

Pay ALL sales taxes based on seller physical location - their formal physical address where they register their business to operate, or for 'private' sellers, THEIR state of residence.

Just like for in-store sales.  Of course, if one lives/sells in a 'non-tax' or lower tax state, that seller would have comparative advantage.  

Which is something a state can (and already does) do to attract business.  Which is why so many businesses incorporate in tax friendly states like Deleware (for example) while operating in more 'Posh' environs.

This ain't that hard really.  Well, except for the abeyance of greed part that would be incumbent on the given state(s) whining about loss online sales tax revenue, who'd have to 'lose' out to the seller state v. their own residen's.  

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: Tinker Belle This user has validated their user name.

Sun Mar 11 11:04:35 2018

GREAT POINTS! could I add a few for thought?

RE: ''exported'' vs ''imported'' - this squabble demands reference to the difference between ''PRO'' and ''CON'' - we know what PROgress is, we also know what CONgress is.  

Sadly, Priority-One for most of the alligators in the swamp is their own good fortune, i.e. cementing a career enriching themselves. They go for the money - so it is fruitless trying to convince ''Guv'mint'' that ''exported'' should be the determining factor, instead of ''imported'' (where the MONEY is at!).  

RE: Sales tax - Just to clarify - when you buy an item from a vendor you pay ''SALES TAX.''  When you buy an item from a vendor who does not charge sales tax that will be remitted to your state (regardless of vendor location) you OWE your state ''USE TAX'', which you are supposed to remit to the state via tax forms.  NY recently implemented a line on the personal income tax form, where residents are supposed to insert the $ value of items they bought (from anywhere) on which no NYS sales tax was paid.

Without spending any time researching, I wondered if buried somewhere in states' tax & finance departments are forms for non-residents to file to request sales tax reimbursement on purchases they made out of state (on which usually they owe use tax in their home state). On a trip to Canada I paid taxes for in-store purchases, but was able to get reimbursed at the border returning to New York. This is a welcoming, generous thing to do, perhaps building better international tourist relations, but New York (for one) is not so generous.

''If it's bought in New York it's taxed in New York'' -   https://nystax.custhelp.com/app/answers/detail/a_id/1468/~/if-i-am-not
-a-resident-of-new-york-and-i-come-into-the-state-and-purchase

So
poor Mr Arizona appears to be stuck paying NY Sales Tax on his Lady Liberty, AND then owing Use Tax to The Grand Canyon State, a double whammy unless he psssst-dont-tell doesn't declare use tax in his Arizona return (if there's a blank for that), in which case if the Revenooers audit him, and he's kept the receipt for Lady Liberty, he may be subject to tax evasion..............

As they keep spending our money like tossing out dirty dishwater, requiring increasingly creative ways to suck more and more of it out of our pockets..........    



Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: pace306 This user has validated their user name.

Sun Mar 11 14:01:20 2018

This issue has previously been decided and will again be examined under "Quill" (which goes back to 1992 pre internet).

Its NOT about States Rights or State vs Federal taxation - its simply about what constitutes "presence".

The question is "does the Internets reach "everywhere" constitute a presence in a state or location.

The 2 overarching laws that governed QUILL were:

A) The Due Process Clause: The Due Process Clause states that no state shall "deprive any person of life, liberty, or property, without due process of law." With respect to state taxation, the Supreme Court has interpreted this to prohibit a state from taxing a corporation unless there is a "minimal connection" between the company and the state in which it operates.

and

B) The Commerce Clause: The Commerce clause, in part, authorizes Congress to "regulate commerce with foreign nations, and among the several States." The Supreme Court has ruled that the Commerce Clause prohibits states from enacting laws that might unduly burden or inhibit the free flow of commerce between the states. In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), the Supreme Court ruled that the taxpayer must have "substantial nexus" with the taxing state in order for the state to impose its tax on the taxpayer.

In the U.S. Supreme Court case in 1992, Quill Corp. vs. North Dakota, 504 U.S. 298 (1992), answered some of the questions about how the Due Process and Commerce Clauses shape the world of sales taxation. The case attempted to clarify the terms "minimumconnection" and "substantial nexus". Quill is still recognized as the landmark case regarding nexus, and you'll find it in any research you might do on the issue. In fact, the case has recently appeared in the mainstream media quite frequently as Congress considers passing Marketplace Fairness legislation (see "Internet Tax & SST" section) that might ultimately overturn this landmark decision and change the sales tax filing landscape significantly.

This Supreme Court ruling is significant because many states are passing legislation that contradicts the Quill ruling that a company must have substantial nexus before being required to file. It provides a real dilemma for taxpayers when a state's legislature passes a law that provides a bright line threshold for nexus creation. For example, several states have enacted statutes that state that if a seller has a specific dollar amount of sales into the state, then nexus has been created and the company has a sales tax collection responsibility. Such legislation is contrary to the Supreme Court ruling in Quill and is therefore unconstitutional. So, a taxpayer can disagree on principal but lose in practice until challenges against the legislation work their way through the courts where it may ultimately be deemed unconstitutional.

In "Scripto" a partial definition for NEXUS was created/established. 3P sellers are considered by "most" to be 3rd party contractors and NOT just mere sellers. That coupled with the reach of the internet and hungry states who B&M companies "cry out for relief against the onslaught of the internet ruining their business" grows louder by the day.

Scripto says "One common misperception that companies have regarding nexus and creation of taxable presence is that they create nexus in a state only if they have property and/or their own employees physically entering the state on a regular and systematic basis as supported by the Quill decision. Many believe that if the company operates with third party contractors in a given state, it does not create nexus. This is incorrect. In Scripto, Inc. v. Carson (362 U.S. 207, 1960), the U.S. Supreme Court addressed the issue of independent sales representatives creating nexus. The court held that with respect to nexus creation, the distinction between employees and independent contractors was "without constitutional significance" and that to make such a distinction would open the door to planning for tax avoidance. Thus, independent contractors working on behalf of a company in a state are held to the same standards as employees with regard to creation of nexus.

eBay is afraid of it (taxation) because they will loose any possible advantage of purchasing common goods from them instead of Walmart/K-Mart or even Target. PLUS as the merchant of record ...it COULD all land in their lap - ie they would be responsible to inform each seller of their tax burdons and possibly even be on the  hook should a seller refuse to pay - stating "eBay made the sale, NOT me - I didnt get paid directly ... I just received a commision etc".

Stay Tuned!

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: Snapped This user has validated their user name.

Sun Mar 11 16:00:49 2018

@Pace - nice brief!

And that's (a precise example) of what happens when 'lawyers' congregate to cogitate what ought to be a simple question.  That being the one you began with; the internet's 'reach' regarding establishment of a nexus.  

To me, it's simply a different form of point of sale akin to no more than a remote control cash register.  It is (ought to be) where the proceeds are destined for collection (accounted for) vice from where paid, that should determine jurisdiction.

And I agree, especially given eBay's plans, they are quivering in their padded chairs.  

Except for their lawyers of course.  Job security.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

This user has validated their user name. by: Marie

Sun Mar 11 16:17:45 2018

I don't think Ebay becomes liable like Amazon and Etsy until they start being a money processor.  I certainly could be wrong, but that is my opinion.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

This user has validated their user name. by: Bill

Mon Mar 12 00:07:09 2018

Marie,

The fact that eBay could be held responsible right now is vague but we are considered contractors simply because they have set up the foundation that we all sell on so Pace has a solid  point there.
You though are absolutely correct. If they become the money processor then they are definitely liable.
I think that is why they are so vague now with the terms and conditions on there new payment processing service because they are trying to figure out how they would not be held liable for any taxes that might be owed.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

This user has validated their user name. by: Marie

Mon Mar 12 02:25:39 2018

@Bill

IMHO since states are not yet going after other sites that do not act as the payment processor is the reason Ebay hasn't been affected by the moves on Amazon and Etsy.

I did not say or mean to imply that Pace did not have valid points.

There are many more factors in why Ebay hasn't released more details about the payment processing program.  Certainly taxes is one of them, but from the moment they become a payment processor, they will have to give us the ability to get proper sales reports.  That is going to be a HUGE issue for Ebay.  But it is a must.  They will have to issue 1099's and they will have to be able to support those numbers by giving us reports we can work with for a whole lot further back than 90 days.  

It will be interesting to see how this all unfolds.  But we have time as this isn't something that is in the immediate future of Ebay at any large percentage of sellers.  That isn't to minimize the impact.  I'm just saying we have a little time to get use to this and watch what Ebay does closely.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: pace306 This user has validated their user name.

Mon Mar 12 06:55:35 2018

I didnt frame my post with the thoughts that Marie had in mind - but after reading her post and Ina's on the changes to the TOS - the view that we are 3rd party contractors is even stronger.

My point(s) were the legal issues surrounding it all - eBay active participation in the sale is an entirely NEW issue.

If eBay relists an item you didnt intend to relist - then THEY have exhibited new found power/control over listings (that one at least) and THEY should be responsible.

Never mind eBays charging you for a service and not providing it - thats the UA topic (and thats fraud btw), each time that eBay ACTIVELY involves itself - they demonstrate that THEY are the merchant - not the sellers. Sellers then become contract workers to ship items - like a warehouse worker in some Amazon FBA warehouse. Seller SHOULD then be off the hook for paying the tax - since they "didnt make the sale".

Amazon doesnt worry about this, since they derive income from MANY other sources besides simple fees on goods sold.

Whether its FBA fees, pick pack fees, LTS fees, Cloud services etc - they need not worry about "FVF" and who pays sales tax. Sales tax DOESNT stop people from buying on Amazon (other issues do however).

I'll bet you all the street cars in San Fran that the reason eBay hasnt made any details about Payments known - is that they are looking at the legal issues surrounding it. Amazon knows it may have to pay ST on sales, for eBay its a night terror they never faced before ... "how to have as close to %100 over a sellers listing(s), without being liable for tax issues", and certainly -  being the merchant of record ON TOP of everything else ... makes it worse not better.

DW isnt asking sellers to go to DC to fight this for "their own sakes", its purely for HIS.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: topdog This user has validated their user name.

Mon Mar 12 09:28:00 2018

Marie, these are not imports - we as a company are not importing anything to NY, or other states. We are exporting them - the CUSTOMER Is importing them. Yet the states want to hold the exporter - the business - liable for these taxes. They think it will not only be easier to go after us, but then they can tell their constituents that they're raising taxes on others, not them. And to be honest, that's really what this is about - raising taxes.  

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: topdog This user has validated their user name.

Mon Mar 12 09:37:01 2018

Here's the big issue with all of these taxes - and why they were prohibited originally -
We do not reside in other states. None of our employees reside in other states. Therefore we have absolutely zero say in what those states do regarding taxation. It's a real case of taxation without representation.
Further, we do not use the services of that state. They do not provide us any benefit. One can claim that the delivery people use the roads, but so do I when I traverse a different state, but I am not liable for taxes when I do so. To claim that this would qualify is rather disingenuous.
Once you go down this path, it opens a real can of worms. Once you start taxing those who can't vote you out of office, where does it end? It ends up being like the hotel tax, which in many areas is around 20% - all because those that pay do not get a say in the matter. Once one state raises theirs, the next will do the same, and the next, and they'll all keep pushing the envelope. It's a giant money grab, all in the name of "fairness" and "protecting our businesses".
Further, the states will have no interest in making the tax process simple. Rather, the opposite is true. The harder they make it, the more opaque and difficult it is, the more likely sellers will simply take the bill presented by the state and pay it in full, rather than try to figure out what they really owe.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: topdog This user has validated their user name.

Mon Mar 12 09:42:58 2018

If they want to do the tax, the answers are simple.
TAX EBAYAMAZONWALMARTETC. Let THEM collect and remit the tax. They are the ones who have a nexus in the states, THEY are the ones who employ lobbyists. THEY are the ones who run the sites, THEY ARE THE ONES COLLECTING THE MONEY. Moreover, the biggest proponent of the MFA is - Amazon! (They know that they can comply, we will have a hard time doing so, therefore they will gain a competitive advantage.) So let them collect it.

If you don't like that, then there's always option 2. Provide one set of rules nationwide, one tax rate, and one payment entity. Let the states figure out how to divvy that up. As a one man e-commerce show, I simply don't have the resources to deal with all the different rates ulespayment processes. If you want me to pay, then make it simple. Otherwise get your filthy hands out of my pockets!

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: Steve M This user has validated their user name.

Mon Mar 12 10:05:41 2018

Everyone,

In the meantime we are having these sales-tax discussions and all of these problems US Based sellers are facing now-days, eBay comes sneaking on our backs and stabbing us to death...as of March 11 2018, Ina reports that eBay has just made it much easier for Chinese sellers to ship from China to USA and other European countries FAST AND CHEAP????  Holly-Cr**p...link here:

https://www.ecommercebytes.com/2018/03/11/ebay-speedpak-g
ets-chinese-goods-delivered-to-us-faster-with-tracking/

What!!!,
what are we going to do???
The Chinese ARE NOT paying a single penny in sales-taxes, federal taxes or any taxes to US Government for that matter!!!  YET, it just became so much easier for the Chinese to reach American Customer!!!

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: epuise This user has validated their user name.

Mon Mar 12 10:38:04 2018

IF the top 20% (billionaires, millionaires)... PAID THEIR FAIR SHARE (taxes proportionate to how much they pull from the economy)... States, who get reimbursed from Fed Income Tax, wouldn't be so strapped...

REVERSE the GOP Tax Cut, raise it back to pre-Bush days... and things will improve for REGULAR people.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: NoFreeLunch This user has validated their user name.

Mon Mar 12 11:01:02 2018

Sites like Etsy and Amazon love this for the independents that sell on their sites.
Amazon already has a physical presence in all states, so they are collecting sales tax, anyway..
For example, Etsy charges a Final Value Fee, and the sale tax will be included in that, so they will make 3.5% on the sales tax..
Plus Etsy also processes the total amount of the sale including the tax, so they will make a % of that processing fee on the sales tax.
PA's new law will go into effect on April 1, so when Etsy pays the sales tax to the Commonwealth of PA, they will get to keep 1% of the sales tax they collected.
It's a money maker for them.
Also the Supreme Court has agreed to hear a new case on this subject.
I believe it's North Dakota vs Wayfair, which will revisit the 1992 ruling of Quill vs North Dakota.
This is all hype, and just a way for the greedy states to get more money to waste.
It used to be, you ordered from the Sears. J.C. Penny, Spiegal etc., catalogs.
The internet is no different, just a different ordering medium.
The states collect sales tax from people traveling through their states, so it evens out.
Don't expect me to be a tax collector for 50 states plus territories, for free.

Online Sales Tax Prohibited by the Constitution   Online Sales Tax Prohibited by the Constitution

by: geoffreymason This user has validated their user name.

Mon Mar 12 15:47:07 2018

STEVE M: Excellent point. Be fair across the board and require Chinese and other international sellers to collect and remit sales taxes to the various states ... or just drop the whole silly idea.

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