Well, it was bound to happen. We already know that cities and states have been imposing ridiculously high taxes on hotel rooms and restaurant meals. Why? Because hotels are generally booked (and paid) by tourists from out of state (or country). What a great way to sock it to visitors. To keep the residential taxes low.
It has been the law of the land that no sales tax are due from out-of-state vendors for some 2 decades. That was when the US Supreme Court (SCOTUS) ruled against North Dakota (and in favor of Quill, one of the first mail order office supply companies) in its desire to collect sales tax revenue on sales delivered (and not made) within its borders. But, the Supreme Court did say that Congress could determine that such sales would constitute nexus. Which is what is about to change.
Sometime this year, states will be afforded the right to impose sales taxes on items sold by out of state vendors to residents of their state. Believe it or not, that bill is called the Marketplace Fairness Act.
(I do recall about two decades ago when my (now ex-)wife got a bill from the Commonwealth of Virginia for about 2 grand for sales taxes on the furniture she bought (and had shipped) from some North Carolina factories.) For years, Amazon was the biggest lobbyist against this practice- but now that it plans to have warehouses around the US (to speed up deliveries), it is no longer against sales taxes for all. (Ah, principles…)
(By the way, if you run a small business, this will be an interesting exercise. Unless some really good simplifications are developed, you could have to track sales by state- and locality (since some cities and counties impose higher taxes than the overall state rate) and report (and pay) the sales tax due for each locality.)
Which is probably why states like Tennessee, California, and New York (among about 30 others) are demanding out-of-state entities pay their corporate franchise tax. Tennessee is about to pass their bill- and that means any entity selling more than a half-million ($500K) within their state borders, owes a 0.25% tax on their net worth. Regardless of the fact that there is no corporate presence within the state.
And, let us not forget that there is a law- dating back 55+ years (1959)- the Interstate Income Act- that declares it illegal to require any business to pay income tax to a state where it has no physical presence. Yes, that means soliciting orders from state residents does not confer nexus to that state.
Yet, more than 20 states have adopted the absurd proposition that companies that attend job fairs or recruit in their state affords a tax nexus within their borders. (New York may actually include activities such as attending a technical conference within their state’s borders.) For sure, renting a web server within a state’s borders is one situation that many states already use to collect income taxes from various companies.
Ah, nothing is certain but death and taxes…even if we don’t understand the logic of why these taxes are legal.
