CRS – Taxation of Internet Sales and Access: Legal Issues. Erika K. Lunder, Legislative Attorney. December 1, 2014.

“In recent years, there has been significant congressional interest in the states’ ability to impose sales and use taxes on sales made over the Internet. While these taxes are imposed on the consumer, states generally prefer that retailers collect and remit them, rather than relying on the consumer to pay the tax. State laws requiring retailers to collect sales and use taxes are subject to federal law. First, such laws must comply with the U.S. Constitution, of which two provisions are particularly relevant—the dormant Commerce Clause and the Fourteenth Amendment’s Due Process Clause. Second, such laws must comply with the Internet Tax Freedom Act. Both the dormant Commerce Clause and the Due Process Clause require that a retailer have a certain connection or “nexus” to the state before the state can require the collection of tax. The Supreme Court has held that the required nexus under the dormant Commerce Clause is the seller’s “physical presence” in the state, while due process requires only that the seller have directed purposeful contact at state residents. Notably, Congress may change the “physical presence” standard under its power to regulate interstate commerce, so long as it is consistent with other constitutional provisions including due process. In the 113th Congress, the Senate has passed the Marketplace Fairness Act of 2013 (S. 743), which would allow a state to impose sales and use tax collection duties on remote sellers, regardless of physical presence, if the state (1) is a member of the multistate Streamlined Sales and Use Tax Agreement (SSUTA) or (2) sufficiently simplifies its sales and use tax laws and administration. In addition to the Constitution, state sales and use tax collection laws must also comply with the federal Internet Tax Freedom Act (ITFA). It imposes a temporary moratorium on states imposing discriminatory or multiple taxes on electronic commerce. The moratorium also generally prohibits state taxes on Internet access. The act is scheduled to expire on December 11, 2014.”