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1 Chris Atkins, Establishing Physical Presence: Borders Online Case Reveals Court Disharmony in Applying Physical Presence Rules to State Sales Taxes 1 (2006)

handle is hein.taxfoundation/ffghxz0001 and id is 1 raw text is: r:OuU NDAT10N. September 26, 2006 Establishing Physical Presence: Borders Online Case Reveals Court Disharmony in Applying Physical Presence Rules to State Sales Taxes by Chris Atkins (The following article originally appeared in the September 26, 2006 edition of State Tax Notes.) Fiscal Fact No. 67 Introduction The issue of sales and use tax collection on remote sales has plagued policymakers since the proliferation of catalog sales in the 20th century and continues to do so with the expansion of sales made over the Internet. The issue involves competing principles of federalism, state sovereignty, and tax neutrality. Theoretically, all sales in a state should be taxed equally, regardless of whether the goods are purchased over the Internet or at the local shop. There is a real danger, however, in allowing state governments to make out-of-state retailers their tax collection agents. Should a state's ability to efficiently administer its sales and use tax system trump a retailer's right to freely engage in interstate commerce? Do retailers that sell and ship products from out of state receive sufficient benefits to require them to collect sales or use tax? Those questions have not yet been answered to the satisfaction of state revenue officials or the business community, who are working together on the Streamlined Sales Tax Project to develop a better state sales tax system. In the 109th Congress, Sens. Michael B. Enzi, R-Wyo., and Byron Dorgan, D-N.D., introduced legislation (S. 2152 and S. 2153) that would give congressional approval to the SSTP system. The Sales Tax Fairness and Simplification Act (STFSA) would approve state participation in the system if a state met specified requirements. Most significantly, the legislation would overturn an important U.S. Supreme Court decision that protects remote sellers. In the case of Quill v. North Dakota, 1 the Supreme Court ruled that a remote seller could not be required to collect a state's use tax if it did not have a physical presence in that state. Last year, in Borders Online v. State Board of Equalization,2 the California Court of Appeal ruled that Borders Online had to collect California use tax3 on all sales made to

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