Cengage Advantage Books: Business Law Today, The Essentials 11th Edition by Roger LeRoy Miller

Exercise 1

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT
Taxing Web Purchases
In 1992, the United States Supreme Court ruled that an individual state cannot compel an out-of-state business that lacks a substantial physical presence within that state to collect and remit state taxes. Although Congress has the power to pass legislation requiring out-of-state corporations to collect and remit state sales taxes, it has not yet done so. Thus, only online retailers that also have a physical presence within a state must collect state taxes on any Web sales made to residents of that state. (State residents are supposed to self-report their purchases and pay use taxes to the state, which they rarely do.)
Redefining Physical Presence
Several states have found a way to collect taxes on Internet sales made to state residents by out-of-state corporations. These states have simply redefined physical presence. In 2008, New York changed its tax laws in this manner. Now, an online retailer that pays any party within New York to solicit business for its products is considered to have a physical presence in the state and must collect state taxes. Since then, at least seventeen other states have made similar changes in an effort to increase their revenues by collecting sales tax from online retailers.
These new laws are often called "Amazon tax" laws because they are aimed largely at Amazon.com. Nevertheless, they affect all online sellers, especially those that pay affiliates to direct traffic to their Web sites. The laws allow states to tax online commerce even though, to date, Congress has explicitly chosen not to tax Internet sales.
Local Governments Sue Online Travel Companies
Travelocity, Priceline.com, Hotels.com, and Orbitz.com are online travel companies (OTCs) that offer, among other things, hotel booking services. By 2016, more than twenty-five cities, including Atlanta, Charleston, Philadelphia, and San Antonio, had filed suits claiming that the OTCs owed taxes on hotel reservations that they had booked. All of the cities involved in the suits impose a hotel occupancy tax, which is essentially a sales tax.
Initially, some cities won their cases, but more recently, cities have been losing in court. As of 2016, the OTCs had prevailed in eighteen of twenty-five cases nationwide. An exception is a 2014 case in Wyoming in which the state supreme court held that Travelocity, Priceline, Hotwire, Expedia, and Trip Network had to collect and remit sales tax.
The Market Place Fairness Act
By the time you read this, online sales taxes may have become a reality for every online business that has annual revenues of more than $1 million. For several years now, legislation called the Market Place Fairness Act has been under consideration in the U.S. Senate. The act, if passed, would allow states to collect sales taxes from online retailers for in-state transactions.
A significant problem with such legislation is the complexity of collecting taxes for multiple jurisdictions. The current tax system involves 9,600 taxing jurisdictions. Even one zip code may cover multiple taxing entities, such as different cities and counties. Consider that the Dallas-Fort Worth airport includes six separate taxing jurisdictions. Current software enables retailers to collect and remit sales taxes for different jurisdictions, but the software is extremely costly to install and operate. Overstock.com, for example, spent $1.3 million to add just one state to its sales tax collection system.
Critical Thinking
Some argue that if online retailers are required to collect and pay sales taxes in jurisdictions in which they have no physical presence, they have no democratic way to fight high taxes in those places. Is this an instance of taxation without representation Discuss