By: Andrew Landrum, Associate Technical Editor<\/p>\n
The global advent of interconnectivity has led to breakthroughs in communication, innovation, scientific collaboration, and, most importantly, how to spend money in the comfort of your pajamas. \u00a0Online shopping has become the way of the future. \u00a0No more will store hours, location, or Netflix conflict with the impulse to buy. \u00a0Indeed, this past August, the United States Department of Commerce has reported a steady growth of E-Commerce, as it now comprises an adjusted total of almost 7% of all total retail sales.[1]<\/a>\u00a0 For just the second quarter of 2014, the United States E-Commerce sales totaled $75.0 billion.[2]<\/a>\u00a0 The problem, however, is that these sales run zero-sum with brick-and-mortar companies.[3]<\/a><\/p>\n Brick-and-mortar companies are those businesses that maintain a physical presence in a state. \u00a0Their presence supports\u00a0the local economy, provides\u00a0jobs, and offers\u00a0face-to-face customer experiences. \u00a0However, it\u00a0also succumbs them to state and local regulations, like sales taxes. \u00a0These\u00a0sales taxes support\u00a0state and local governments but also constitute extra burdens on local consumers.[4]<\/a>\u00a0 These burdens, however beneficial, are pushing consumers online.[5]<\/a><\/p>\n States have attempted to react by passing Internet sales taxes.[6]<\/a>\u00a0 These taxes are meant to level the playing field between brick-and-mortar companies and E-Commerce industries.[7]<\/a>\u00a0 However, these measures have not gone without resistance. \u00a0Policymakers have also been weary of unfair taxation and thus passed the Internet Tax Freedom Act, meant to protect, \u201cunfettered access to one of the most unique gateways to knowledge and engines of self-improvement in all of human history.\u201d[8]<\/a>\u00a0 This legislation has served as a springboard for litigation. Online companies argue\u00a0Internet sales taxes implicate Internet tax freedom and discriminate against out-of-state companies solely because of the nature of their business.<\/p>\n The Internet Tax Freedom Act was passed in 1988 and will likely be extended indefinitely by the end of this year. \u00a0The text of the act clearly prohibits two things: (1) taxes on internet access; and (2) multiple of discriminatory taxes on electronic commerce.[9]<\/a>\u00a0 Clearly the first prohibition on internet access has no relevance to online sales tax litigation. \u00a0The real issue falls on what is defined as a \u201cdiscriminatory tax\u201d on E-Commerce. \u00a0There has been much debate among online service providers, and state and local governments as to what constitutes a discriminating tax. \u00a0These businesses hold that taxing a service or good merely because the transaction occurs online should constitute discrimination and runs in the face of the Internet Tax Freedom Act.[10]<\/a>\u00a0 However, as explained by the 7th<\/sup> Circuit, the misleading name does not ensure \u201ctax freedom\u201d but only freedom from unfair taxation.[11]<\/a><\/p>\n According to the relevant provisions of the Act itself, discriminatory E-Commerce taxes are those taxes that: (1) are not imposed on the same or similar property, goods, services, or information accomplished through other means; (2) are imposed at a higher rate than those goods, services, or information accomplished through other means; (3) imposes an obligation to collect or pay the tax on a different entity than would otherwise be normally taxed; or (4) the taxes are imposed on an internet access service provider merely because the provider displays the resellers information or processes the orders through an out-of-state computer server.[12]<\/a><\/p>\n Accounting for the first three sections, courts have allowed E-Commerce tax statutes for purposes of levelling the playing field between online industries and companies physically present.[13]<\/a>\u00a0 E-Commerce taxes that run at a similar rate as those imposed on brick-and-mortar companies have not been found to qualify as \u201cdiscriminatory\u201d under the Internet Tax Freedom Act.[14]<\/a>\u00a0 This statute, despite its name, does not create \u201ctax freedom\u201d per se but instead merely prohibits disadvantaging one type of retailer over another.[15]<\/a><\/p>\n The fourth provision has created litigation between cities and states, and online auction and solicitation websites such as Ebay, Craigslist, or Stubhub!.[16]<\/a>\u00a0 Courts have drawn a line between these service providers and have declared that if an intermediary takes an active role in, \u201cstaging an auction and exchanging goods for money\u201d they have so involved themselves in the transaction that state imposed taxation on the providers service is not discriminatory.[17]<\/a>\u00a0 Those that play an active role act as an agent of the reseller and can be taxed accordingly, whereas passive websites that merely list the offer and the offeror\u2019s information cannot.[18]<\/a><\/p>\n The availability of online services has blurred the commercial lines, making comparisons between internet companies and brick-and-mortar businesses difficult. \u00a0States are, however, allowed to tax each type of company similarly, assuming their services provided are comparable and the tax imposed is equitable. \u00a0In an increasingly diverse market, all states can do it ensure all companies have a fair shot at competing for your business.<\/p>\n <\/p>\n [1]<\/a> U.S. Census Bureau, Quarterly Retail E-Commerce Sales, U.S. Department of Commerce (Aug. 15, 2014, 10:00 AM) available at<\/em>, http:\/\/www.census.gov\/retail\/mrts\/www\/data\/pdf\/ec_current.pdf.<\/p>\n [2]<\/a> Id.<\/p>\n [3]<\/a> Grant Gross, U.S. residents oppose Internet sales tax, say they\u2019ll shop online less, Computer World (May 13, 2013 5:43 PM), http:\/\/www.computerworld.com\/article\/2497336\/e-commerce\/u-s–residents-oppose-internet-sales-tax–say-they-ll-shop-online-less.html; See<\/em>, U.S. Census Bureau, supra<\/em> at note 1 (displaying an increase of E-Commerce makes up an increasingly large amount of overall retail transactions).<\/p>\n [4]<\/a> U.S. Census Bureau, Quarterly Summary of State and Local Government Tax Revenue for 2014:Q2, p.2, Sept. 23, 2014, available at<\/em> http:\/\/www2.census.gov\/govs\/qtax\/2014\/q2infosheet.pdf (sales tax totaled $89.5 billion in Q2 of 2014).<\/p>\n [5]<\/a> See<\/em>, U.S. Census Bureau, supra<\/em> at note 1.<\/p>\n [6]<\/a> Kate Tummarello and Bernie Becker, Senators renew Internet sales tax push, the Hill (July 16, 2014, 6:00 AM), available at<\/em> http:\/\/thehill.com\/policy\/finance\/212385-senators-renew-internet-sales-tax-push.<\/p>\n [7]<\/a> Id.<\/p>\n [8]<\/a> PERMANENT INTERNET TAX FREEDOM ACT, 160 Cong Rec H 6228.<\/p>\n [9]<\/a> Interstate Tax Freedom Act, \u00a7 1101(a)(1), (2), 47 U.S.C. \u00a7 151 note.<\/p>\n [10]<\/a> Id.<\/p>\n [11]<\/a> Id.<\/p>\n [12]<\/a> Interstate Tax Freedom Act, \u00a7 1105(2); 47 U.S.C. \u00a7 151 note.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n [13]<\/a> StubHub!, Inc<\/em>., 624 F.3d at 366.<\/p>\n [14]<\/a> Id<\/em>.<\/p>\n [15]<\/a> Id<\/em>., at 365;Travelocity.com, LP<\/em> v. Wyo. De [16]<\/a> Stubhub!, Inc<\/em>., 624 F.3d at 366.<\/p>\n
\np’t of Revenue<\/em>, 2014 WY 43, 103 (Wyo.2014) (Noting that policies that do not single out individual consumers and generally apply to all willing to engage in taxed commercial practices are not discriminatory).<\/p>\n