DrawingBD

Courts Find Internet Tax Collection Laws Unconstitutional – Sends Tax Collectors Back to Drawing Board

It’s a tough day for state tax collectors when two different judges in two different states declare unlawful their attempts to skirt the constitutional protections in Quill.

It stared with a federal court in Colorado permanently enjoining Colorado law that unfairly discriminated against out-of-state businesses in violation of Article 1 of the US Constitution.

The Colorado law applied only to businesses that did not collect Colorado taxes (in other words, any out-of-state businesses).  Colorado required these businesses to tell consumers of their requirement to pay use tax at the time of a sale, issue tax notifications, and report sales to the state.  The court found all three requirements unconstitutional.

Then, three weeks ago, a court in Illinois declared the state’s advertiser-nexus tax law unconstitutional and in violation of the Internet Tax Freedom Act (ITFA).

In a summary judgment ruling, the Illinois court found the state’s advertiser-nexus tax law unconstitutionally burdened out-of-state businesses.  But also, in a first-of-its-kind ruling, the court stated that the advertiser-nexus tax law was unfair to internet businesses in violation of Congressional protections of e-commerce under the ITFA.

With these recent rulings, state tax collectors must go back to the drawing board to find a way to get out-of-state businesses to collect and remit taxes.

Here’s an idea, why not achieve true simplification?

But here’s an idea, why not achieve true simplification?

If the tax collection obligations for an in-state business were just as easy as for an out-of-state business, then we might not have all these judicial challenges.

So, rather than create new schemes, tax collectors should create real simplification.

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