States Collecting Internet Sales Tax May Face Class Action Suits

Indianapolis -- July 6, 2011 -- On June 29th, California joined the growing number of states collecting Internet sales taxes and the new tax collection is expected to raise an estimated $317 million dollars a year in new state and local government revenue. But the litigation underway in other states may determine if California is ultimately able to keep these taxes. Should the current statues taxing inter-state e-commerce be found to be facially unconstitutional, taxes on inter-state e-commerce may have to be refunded. Class action suits may be a remedy that states such as California will be required to contend with, Net Literacy predicts.
“Net Literacy believes that current statutes taxing inter-state e-commerce are facially unconstitutional because they violate the Commerce Clause and Federal legislation,” says Net Literacy’s Daniel Kent in a whitepaper entitled A Discourse on the Discordant State of Collecting Domestic Digital Duties. “Should the current litigation be found in favor of the e-commerce merchants such as Amazon, taxpayer refunds of these will adversely impact state budgets.”
Since 2007, reductions in states’ tax collections have accelerated their efforts to identify new sources of revenue. States are redefining the definition of “substantial nexus” or the physical presence of out-of-state e-commerce to avoid running afoul of constitutional challenges. Because technology has been moving faster than legislation has been enacted, ambiguities have been created.
“A loss of sales tax revenues from inter-state e-commerce during a slow economic recovery is putting added pressure on states working to balance their budgets,” said Kent. Many states require their citizens to pay use taxes on e-commerce purchases made out of state. Also, Streamlined Sales Tax Executive Director Scott Peterson said that more than 1,500 companies registered on the central registration system have collected $700 million in sales taxes for the Streamlined states. “With the recent legislation passed in California, Illinois, and other states, the amount of taxes collected on inter-state e-commerce sales will dramatically increase in the future together with states’ potential liabilities,” said Kent.
The principal of prospective retroactivity has been raised by some state officials discussing their state’s liability should the inter-state e-commerce litigation be decided against them. To Net Literacy’s knowledge, a class action suit has not yet been filed by taxpayers seeking redress for payment of unconstitutional state taxes or by businesses seeking to recover administrative costs of collecting the taxes and for the associated loss of sales and profits.

This whitepaper is available at www.netliteracy.org/whitepapers-fcc-filings.

About Net Literacy. Net Literacy is a student-operated 501(c)3 nonprofit focusing on increasing digital inclusion and digital literacy. Founded in 2003, Net Literacy has increased computer access to over 150,000 Americans, been honored by two American Presidents, and been cited by the FCC in the National Broadband Plan. Additional information is available at www.netliteracy.org. This whitepaper is available at www.netliteracy.org/whitepapers-fcc-filings. For further information, contact Daniel Kent at danielkent@netliteracy.org or at (317) 324-8880.

Net Literacy
426 Springwood Dr.
Carmel, IN 46032-7935

Daniel Kent
Founder
317-324-8880
danielkent@netliteracy.org

This release was published on openPR.