In the past, assessment and submission of state sales taxes was easy. Merchants would add on the required state sales tax to the purchase, that amount would be collected, and the merchant would submit the required amount to the appropriate governmental authority. This was the case until cars and the telephone were invented. The laws then advanced to address the technology. It then took tax professionals a while to catch up with the rules, but the adjustment was made.

Once again, the governing bodies and professionals now find themselves with another proliferation of technology, i.e. the Internet. The Internet has had the effect of transforming a simple tax into a very complex tax. It is important for merchants to understand the nature and requirements this added technology and the new rules place on the sales tax. State sales taxes can add substantially; not only to the invoice a customer pays, but also an incredible level of confusion. Now merchants must not only calculate sales taxes based on their state laws, but also, add taxes based on different states tax rules, depending on the connection and location of the buyer.

The problem? State sales tax rates and rules vary widely. Some states have no sales taxes, while others have combined state, county, and local taxes adding up to about 10%. As a rule, industrial states, such as New York and California, have higher sales taxes than a lot of other states. In order for a merchant to properly assess and collect sales taxes today, the merchant must now understand not only the connection required, but various states’ sales tax rates and rules as well.

The Connection or “Nexus” Rules

In order for a sales tax to be assessed, a connection to the state must exist with the selling company. This used to be a simple test. It is no longer simple. An analysis of key court cases reveals the following:
    1.  The Quill Case illustrated that if the seller has a physical presence within the state, there is sufficient connection for the merchant to collect a sales tax for that state.

    2.  The Supreme Court then ruled in the International Shoe case that “minimum contacts” is sufficient to impose a sales tax on the selling company.

    3.  In Hanson v. Deckla, the Supreme Court ruled “purposeful availment” (which is a lesser degree of contact than “minimum contacts”) was sufficient to impose a sales tax for the sale.

    4.  In Calder v. Jones, the rule was further eroded when the sale of a magazine in a state was found to be sufficient nexus or connection for the merchant to be responsible to collect and pay the state sales tax.

In short, although the rule behind theQuillcase has been all but eliminated, the constitutional rules of fairness and reasonableness still apply. If a merchant can not reasonably foresee or it would be fundamentally unfair to assess a tax on a seller, the tax will be held to be an impermissible reach of a state’s jurisdiction into another.

New Legislation

Though case determination has largely defined the rules in the past, state legislators are once again making rules to increase their revenue. In what are dubbed “Amazon Laws”, named after, several states are passing laws requiring Internet-based businesses which have very minimal contacts with particular states to collect and submit sales taxes to governing authorities for all sales made over the Internet to addresses in their states. Under these new rules, a possibility exists for some Web site-based companies to be subject to the jurisdiction of 7,500 taxing bodies. This is certainly a challenge for most sellers. The states that currently have or are developing Amazon Laws include: Tennessee, New York, Minnesota, Connecticut, and Hawaii.


Business owners and accountants now are in need of knowing sales tax rules in multiple states, even if their company has no or little physical presence in a state, but the company sells in the state.  The “Amazon Law” has survived scrutiny by at least one court in the State of New York and presumably will survive more.  If your business is in the business of selling via the Internet, you must keep abreast of these rules. Contact The Center if you have any concerns or questions in these matters.

For more information, visit the Center for Financial, Legal and Tax Planning Inc. website,