Use Tax History and Its Implications for Electronic Commerce

Abstract

This study gives a brief historical view of the little known complement to the sales tax, the use tax. Supreme Court decisions regarding the use tax are analyzed with special emphasis given to those that shaped the Quill Corp v. North Dakota decision. As a result of the Quill decision there has been great effort put forth by the Streamlined Sales Tax Project (SSTP) to harmonize the nation's tax codes and lessen the burden on firms from collecting use taxes on remote sales. Current legislation that has resulted from the SSTP's efforts to satisfy the Commerce Clause are also discussed, along with their potential economic impacts.

Keywords:

• e-commerce
• harmonization
• sales tax
• Supreme Court
• tax law
• use tax

Notes

1. Freeman v. Hewit, (1946, p. 253) finds “State taxation falling on interstate commerce, on the other hand, can only be justified as designed to make such commerce bear a fair share of the cost of the local government whose protection it enjoys”.

2. The use tax is charged at a rate identical to a state's sales tax.

3. See Nelson v. Sears, Roebuck & Co. (1941) and Nelson v. Montgomery Ward (1941).

4. See Felt & Tarrant Co. v. Gallagher (1939) and National Geographic Society v. California Bd. of Equalization (1977).

5. See Scripto, Inc. v. Carson (1960).

6. See Miller Bros. Co. v. Maryland (1954).

7. The SSTP was organized by state governments and works closely with the business community to find a resolution to the cross border tax issue. Its web site is http://www.streamlinedsalestax.org.

8. Firms that have voluntarily joined the SSTP under the amnesty program include Wal-Mart, Target, Toys R Us, and Macy's.

9. Use taxes are due on these sales, but it is currently the consumer's responsibility to remit them.

10. This could be voluntary or could occur as more sellers attempt to be multi-channel and thus establish nexus in many states.