Cyber Monday

These presents aren’t going to wrap themselves, folks.

You’re at work, but you’re on Amazon and Overstock searching for deals, right? It’s Cyber Monday–the online equivalent of Black Friday, where the web stores are jammed with consumers distracted at work. Amazon and Target even have special sales on this day and advertise with the adwords “Cyber Monday.”

I guess I’m a scrooge [ed: Ebeneezer Scrooge was a banker, not a lawyer], but the first thing I thought of was how much tax money the state governments were going to get screwed out of today. And thus, a blog post was born.

It turns out that a 1992 US Supreme Court Case, Quill Corp. v. North Dakota 504 U.S. 298 (1992) held that retailers are exempt from collecting sales taxes in states where they have no physical presence (nexus), such as a store, office, or warehouse. The case dealt with a catalog/mail order business, but it has since been applied to Internet retailers. The Court felt that requiring businesses to collect sales tax from 50 states with different rules would amount to an undue burden on interstate commerce.

This ruling did not stop states from collecting the taxes themselves, however, as a “use” tax. To help with collection, states have banded together under the Streamlined Sales Tax Governing Board. Its charter is to “assist states as they administer a simpler and more uniform sales and use tax system.” Signatory states have agreed to simplify use and sales tax structures, and align their laws with other states, so that collecting sales and use tax will be easier for consumers and online retailers. So far, 44 states and the District of Columbia have signed on.

Earlier this year, Congressman Bill Delahunt of MA introduced the “Main Street Fairness Act,” which would authorize those states that have joined the Streamlined Sales Tax Project to require large online and catalog retailers to collect sales taxes.

Congressional action is important because, as you can imagine, states have difficulty collecting self-reported taxes. While some states, like CA and NY, add a line item to tax returns for consumers to report all online purchases, consumers have little motivation for being honest. Even if they want to pay taxes on all of their online purchases, they face the difficult and burdensome task of collecting and sorting receipts for every online purchase made over the course of the year. The states need the retailers to collect sales taxes at the time of purchase if they ever want to see the revenue.

This situation was illustrated recently when North Carolina sought detailed customer purchase records from Amazon.com in order to collect use taxes.  The State sought information linking consumers with their purchases, many of which are expressive in nature (books, movies, etc). Amazon filed suit to block the request, citing privacy concerns, and last month a federal court granted summary judgment. The First Amendment discussion in the opinion is very interesting. The Law Librarian Blog has a good summary of the decision.

So what’s a consumer to do on Cyber Monday? Save your receipts, I guess. Here are some resources to help you find your own state specific rules:

Internet Sales Tax Fairness, from the New Rules Project

Sales Tax on the Internet, from our friends at Nolo.com

Amazon’s Sales Tax FAQ