States Collecting Internet Sales Tax May Have to Pay Them Back, According to Net Literacy White Paper

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According to a newly released Net Literacy White Paper, legislators may be compounding the budget woes in dozens of states and taxpayers could be the poorer as states scramble to make up for reductions in tax collections by enacting new internet taxes.

Net Literacy believes that current statutes taxing inter-state e-commerce are facially unconstitutional because they violate the Commerce Clause and Federal legislation.

Net Literacy today announced that it is making available its whitepaper entitled “A Discourse on the Discordant State of Collecting Domestic Digital Duties.” The study explains that a growing number of states are collecting Internet sales tax are doing so as the constitutionality of this tax remains in the courts and unresolved.

Topics covered in the whitepaper include:

  • A history of sales tax and the legal doctrines concerning the matter of affiliate nexus and entity isolation
  • As an example, an examination of the State of New York’s application of the tax
  • Statues such as New York’s are examined with respect to Federal legislation and The Internet Tax Freedom Act
  • A discussion of these “Amazon Tax” statues together with a history of proposals and enactments of similar legislation across the nation
  • The public policy ramifications of these statues and the concept of prospective retroactivity
  • Potential remedies for harmed taxpayers through the use of class action suits

If you would like to download a copy of the whitepaper, please visit http://www.netliteracy.org/wp-content/uploads/2011/02/A-Discourse-on-the-Discordant-State-of-Collecting-Domestic-Digital-Duties.pdf

Since 2007, reductions in states’ tax collections have accelerated their efforts to identify new sources of revenue. States are redefining the definition of “substantial nexus” or the physical presence of out-of-state e-commerce to avoid running afoul of constitutional challenges. Because technology has been moving faster than legislation has been enacted, ambiguities have been created.

“Net Literacy believes that current statutes taxing inter-state e-commerce are facially unconstitutional because they violate the Commerce Clause and Federal legislation,” says Net Literacy’s Daniel Kent in a whitepaper entitled A Discourse on the Discordant State of Collecting Domestic Digital Duties. “Should the current litigation be found in favor of the e-commerce merchants such as Amazon, taxpayer refunds of these will adversely impact state budgets.”

The principal of prospective retroactivity has been raised by some state officials discussing their state’s liability should the inter-state e-commerce litigation be decided against them. Net Literacy believes that class action suits may also be filed by taxpayers seeking redress for payment of unconstitutional state taxes or by businesses seeking to recover administrative costs of collecting the taxes and for the associated loss of sales and profits.

About Net Literacy. Net Literacy is a student-operated 501(c)3 nonprofit focusing on increasing digital inclusion and digital literacy. Founded in 2003, Net Literacy has increased computer access to over 150,000 Americans, been honored by two American Presidents, and been cited by the FCC in the National Broadband Plan. Additional information is available at http://www.netliteracy.org. All of Net Literacy’s whitepapers are available at http://www.netliteracy.org/whitepapers-fcc-filings. For further information, contact Daniel Kent at danielkent@netliteracy.org or at (317) 324-8880.

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