Date: January 18, 2002
Creator: Maguire, Steven
Description: State governments rely on sales and use taxes for approximately one-third (32.3%) of their total tax revenue – or approximately $174 billion in FY2000. Local governments derived 16.4% of their tax revenue or $51.6 billion from local sales and use taxes in FY1999. Both state and local sales taxes are collected by vendors at the time of transaction and are levied at a percentage of a product’s retail price. Alternatively, use taxes are not collected by vendors if they do not have nexus (loosely defined as a physical presence) in the consumer’s state. Consumers are required to remit use taxes to their taxing jurisdiction. However, compliance with this requirement is quite low. Because of the low compliance, many observers suggest that the expansion of the internet as a means of transacting business across state lines, both from business to consumer (B to C) and from business to business (B to B), threatens to diminish the ability of state and local governments to collect sales and use taxes. Congress has a role in this issue because commerce between parties in different states conducted over the Internet falls under the Commerce Clause of the Constitution. Congress can either take an active or ...
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