Sales Tax Consulting and the US Constitution

Last week, the Supreme Court received a lot of attention.  The Court has tremendous power, especially in the world of sales and use tax.  Many of our sales tax consulting clients' issues track back to the US Constitution, The Supreme Court and "substantial nexus".

The importance of sales tax nexus stems from The Commerce Clause of the US Constitution (Article 1, Section 8, Clause 3) which states that only the US Congress has the power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."  States were left with the power to tax entities that have established nexus within their state.

The Commerce Clause led to the Dormant Commerce Clause which basically upheld the principle that States cannot tax businesses that are outside of their jurisdiction.  That was further upheld by the US Supreme Court in 1992 (Quill Corp. v. North Dakota, 504 U.S. 298) that decided that the presence of computer software in the state did not create “substantial nexus”.

It's not just "nexus", it's "substantial nexus".  In the age of internet sales and lost sales tax revenue, substantial nexus is a big deal.  It's why Amazon can legally avoid collecting sales tax in most States, it's the force behind "click-through nexus" and it's one of the most controversial and difficult issues in sales tax today.  It's also the reason why you should speak to a sales tax consultant to determine if you have unknowingly created nexus (and tax liabilities) in States where you may have traveled or done business.

If you want to learn more, download Series 1 of our new Sales Tax Handbook.