VIRTUAL TAXATION: STATE TAXATION OF INTERNET AND ON-LINE SALES

SABA ASHRAF[*]

Copyright 1997 Florida State University Law Review

Abstract

Sales are beginning to take place over the Internet and on-line in significant numbers. As commerce moves from the real world to the virtual world, states will lose needed revenue if sales over the Internet and on-line are nontaxable by states. This Article examines the possibility of imposing sales and use tax collection obligations on sellers of tangible goods on-line or over the Internet. Part II discusses the recent growth of commerce on-line and over the Internet, the resulting problem faced by states of lost revenue in the form of sales tax, and the confusion faced by parties conducting sales over the Internet as to their tax collection obligations. Part III describes the constitutional barriers to the taxation of out-of-state sellers. Part IV analyzes several suggested proposals for the constitutional taxation of out-of-state sellers. Finally, Part V concludes that unless there is a federal legislative solution in the area, states may not impose tax collection obligations on out-of-state sellers that sell over the Internet or on-line without any other presence in-state. Thus, companies and individual vendors are free to engage in tax-free sales on-line or over the Internet.


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