Question

Question 1:   Please explain the difference between the commerce clause and the due process clause. Why are these two clauses so relevant in state and local tax cases? Please be specific and provide examples in your answer.

Question 2: South Dakota v. Wayfair has been called the "tax case of the millennium." Explain why this SCOTUS decision is so important for nexus purposes. Also, what issues were left unanswered by the decision.

Question 3: Discuss when a taxable sale occur for sales and use tax purposes. Who is liable for the tax? What common exemptions exist for sales and use tax? How exemption certificates work? In general, what compliance procedures exist in most states?

Question 4: For corporate income tax purposes, explain why many states are adopting market based sourcing for services?

Question 5: What is the importance of the Multistate Tax Compact , the Uniform Division of Income for Tax Purposes Act (UTIPTA) and the Streamlined Sales Tax Agreement

Answer 1

Answer 1. Difference between commerce clause and due process clause?

The Commerce Clause authorizes the government to regulate trade and commerce with other nations. However commerce clause cannot unnecessarily restrict the free trade between the various states. Due process clause deals with the administration of law and order and it acts as a safeguard from arbitrary denial of life, liberty, or property by the government outside the sanction of law. Thus to sum up, commerce clause deals with the trade relations of US and due process clause deals with the general law and order to ensure no one is denied justice.

Answer 2. "South Dakota v. Wayfair", in this case Supreme court overturned the decision of an earlier similar case of National Bellas. Supreme court held that physical presence was not necessary to create a substantial nexus. Thus even the e-commerce operators were brought under the purview of sales tax in entirety. Thus even when they do have physical presence, still they will have to collect and pay sales tax. Hence it is called as the tax case of the millennium.

Answer 3. When a taxable sale occurs, the seller is responsible for collecting and paying the tax to the government. If the seller is having exemption certificate, then he need not collect sales and use tax. Few exemptions are:

a. Goods sold to federal government

b. Goods resold in the same form in which they are purchased.

c. Necessary goods like food, medicines, etc.

Sales tax exemption certificate acts as a proof that the given items can be bought without paying sales taxes. The purchaser fills out the certificate and gives it to the seller. The seller keeps the certificate and may then sell property or services to the purchaser without charging sales tax.

Answer 5. The Multistate Tax Commission is a United States intergovernmental state tax agency. Various States require purchasers of goods who claim exemption from sales tax to provide certification to the seller of such exemption. The Commission has developed a Uniform Sales and Use Tax Exemption Certificate used by most states. It also states that Multi tax commission may order audits of taxpayers that for claiming the exemption.