Taxation
1) Web storefronts are like mail-order shops. Only those with taxable nexus (e.g. local presence as in offices or outlets) will pay sales taxes.
Should nexus be determined by server addresses? Should all Webstores be considered as "present all over the Internet"? What about foreign Webstores?
Sales taxes: why do we have it in the first place? Fiscal needs overrides any technical or legal arguments.
According to existing regulations, businesses are required to collect and pay sales taxes if they maintain a substantial presence in the taxing jurisdiction of a state. The U.S. Supreme Court set a guideline in its 1992 decision (Quill v. North Dakota, 504 U.S. 298) that mail-order firms are not required to collect sales taxes from customers in states where they have no physical presence-known as taxable nexus. Therefore, if a mail-order firm in New York sells a product to a customer in Texas, the firm is not required to collect and pay sales taxes to the state of Texas, unless substantial taxable nexus applies.
What constitutes substantial nexus differs from state to state, and depends on court interpretation. For example, a nexus is established if an out-of-state business maintains an office or a representative-either permanently or temporarily. Here too, the definition of a representative has to be clearly determined. If a person lives in Oklahoma but commutes to his office in Texas, does he have an in-state presence in Texas? If a Californian firm has a Web site in an electronic mall served by an operator in Texas, does the firm have sufficient presence in Texas to be subject to Texas sales tax? Identifying proper taxing jurisdiction is further complicated because a business may have no physical presence at all, but its virtual presence on the Internet may end up being interpreted as "being present" in all locations. In this case, a Web business will be required to collect state and local taxes (including sales, use, excise, transportation, telecommunications and other taxes), all of whose rates differ from locality to locality.
In order to avoid double taxation, a simple tax structure would be based on either the seller (originator of sale) or the buyer (destination of sale). The U.S. Department of Treasury (1996), while discussing income taxes for the global electronic commerce, recognized the residence-based (originator of sale) taxation as the preferred method as the residence of the seller would be easier to identify and corresponds better to the economic activity. Since the originator's residence simplifies the number of tax rates to be applied, it would be simpler than to calculate different tax rates for its customers, who may belong to different taxing jurisdictions. Complicated taxing schemes give sellers an incentive to circumvent them altogether by using off-shore locations for business, which will only involve establishing a computer server and managing remotely.
