November 19, 2008
Swain & Hellerstein: The Silliness of the Physical Presence Rule for Use Tax Collection Nexus
John A. Swain (Arizona) & Walter Hellerstein (Georgia) have published Town Fair Tire and the Silliness of the Physical Presence Rule for Use Tax Collection Nexus, 50 State Tax Notes 447 (Nov. 17, 2008). Here is the Introduction:
It is no secret that neither of us is a big fan of Quill's physical presence rule of nexus for use tax collection purposes. One of us has demonstrated at some length that the rule makes little sense from a policy standpoint, and both of us have suggested that Congress should intervene to create sensible use tax collection nexus standards that are not tethered to the physical presence standard. Those views are typically welcomed by state taxing authorities, who rail against what they perceive to be the unreasonable restraints that the physical presence test imposes on their ability to require collection and remittance of taxes on goods and services that are plainly subject to tax in the state. For corresponding (but diametrically opposed) reasons, those views are typically eschewed by the business community, which generally embraces the physical presence test as an essential protection from what it perceives to be the overly aggressive tax collection efforts of state tax administrators.
There is a certain irony, then -- some might call it poetic justice -- when the physical presence test permits states to impose use tax collection obligations on vendors, who may legitimately claim that those obligations violate principles of sound tax policy. That is exactly what happened in Town Fair Tire Centers, Inc. v. Commissioner of Revenue, in which the Massachusetts Appellate Tax Board sustained Massachusetts's power to require a retailer with stores in New Hampshire and Massachusetts to collect a Massachusetts use tax on over-the-counter sales in New Hampshire. We thought the case was worthy of brief examination if only to demonstrate that the physical presence rule can make as little sense to a business as it normally makes to a state and, we hope, to hasten the arrival of that happy day when the states and the business community jointly petition Congress to enact sensible rules governing tax compliance by out-of-state vendors.
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I wonder what Swain and Helllerstein (and Caron) think about the use of the physical presence test in the e-commerce taxation context. S. 2670 would require a taxpayer to have a physical presence in a state before that state could impose a tax on the person's e-commerce activities. See Senate Bill Requires Physical Presence for State Taxation of E-Commerce.
Posted by: peter | Nov 19, 2008 9:19:49 AM
It is no secret that neither of us is a big fan of Quill's physical presence rule of nexus for use tax collection purposes. One of us has demonstrated at some length that the rule makes little sense from a policy standpoint Learn More
Posted by: Rohan | Nov 26, 2008 1:42:46 AM