- The US Constitution’s Due Process and Commerce clauses prohibit states from inhibiting the free flow of commerce between each other.
- Pursuant to these clauses, the US Supreme Court has ruled that out-of-state businesses need a physical presence (an office, factory, employees, etc.) in a state, in order to be required to collect and remit tax in that state.
- In 1959, Congress passed a law that reaffirmed the Supreme Court decision and said that states are prohibited from imposing a tax on out-of-state businesses “..if a company’s only state activities are
solicitation of orders for sales of tangible personal property…” .
On December 1, 2011, the PA Department of Revenue (“DOR”) issued a bulletin requiring out-of-state businesses to collect sales tax for all PA sales, even if they have no physical presence in PA. The DOR went into great detail on how they would punish businesses who did not register before February 1, 2012.
We see several problems with this:
- It is unconstitutional and against the law.
- It hurts PA consumers financially and small online retailers who need systems to comply with this mandate.
- In other states (RI, NC, and IL) that have similar unconstitutional laws, there has been no increase in state sales tax collections, due to the loss of revenue suffered by these retailers because of this law.
- PA DOR defined “maintaining a place of business” so loosely, that if you can spell PA, you are probably now required to collect sales tax.
- The PA Constitution requires that tax laws need to be strictly construed, and this tax law was done merely by issuing a press release.
Clearly, PA and its Governor Tom Corbett are overreaching and their actions are hurting both consumers and businesses.
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.