1) Commerce Clause – tax cannot place an undue burden on interstate commerce (does NOT apply to intrastate commerce)
a) TEST: (Complete Auto Transit, Inc. v. Brady, Chairman, Mississippi Tax Commission)
i) Substantial nexus between taxpayer and the state
(1) Use tax v. Sales tax nexus – to have the nexus to impose a sales tax, sales people traveling in the state soliciting orders (where payment is made and title is passed outside the state) is insufficient to satisfy sufficiently the nexus requirement. McLeod v. J.E. Dilworth Co.
(2) To satisfy the nexus requirement, a state can impose a tax/exaction against the ultimate consumer, a resident of that state who is paying taxes to sustain the state government. General Trading Co. v. Comm’n.
NOTE: First two rules set up a framework towards a destination based tax system as opposed to an origination-based system (where destination gets the tax – origination state gives way to destination state – who will get the right to tax in sales and use tax context)
(3) The real question is whether this vendor, by its acts or course of dealing, has subjected itself to the taxing power of MD or whether it has afforded that State a jx or power to create this collector’s liability. Due Process requires some definite link; some minimum connection between a state and the person, property, or txn it seeks to tax.
(a) Miller Bros. Co. v. Maryland – DE corp which only sells directly to customers at its store in Wilmington, DE. Residents of MD come to its store and make purchases, some of which they carry away, some delivered by common carrier, and others delivered by corp’s own truck. MD has excise tax on the use of articles in the state and requires the vendor to collect and remit the tax to the State. INSUFFICIENT to establish nexus..
(4) The test is simply the nature and extent of the activities of the TP in the taxing state à there must be some definite link, some minimum connection, b/w a state and the person, property, or txn it seeks to tax. Labels do not matter, rather what the person is doing in the state. Scripto v. Carson. (employees in transit, not sufficient; BUT, sales solicitation is sufficient, but NOT mail orders – see Bellas Hess below).
(a) Scripto v. Carson – GA corp with not much in FL except for residents in FL who worked as wholesalers – salesmen. They weren’t really employees, more like a contractor relationship; but didn’t really matter here to the court.
(5) Employees located in the state (e.g., working at an office located in the state; benefiting from the state’s protection of services like fire, police, etc.) will satisfy the nexus.
(a) National Geographic Society v. Board – NGS had offices in CA, but they had nothing to do with the mail order business of atlases, globes, books, etc. These offices were only focused on the society’s monthly magazine and soliciting advertising for it.
(b) Bellas Hess – mailings/mail orders will not be sufficient to establish substantial nexus requirement; so if the only contact a company has with the state is mailings, there will be no nexus.
(6) Dissociation of a seller’s principal sales activities and its primary local business activity does not bar the imposition of the collection duty. National Geographic Society v. Board.
(7) Due process and commerce clause to not require the same kind of analysis – due process is more about purposeful availment and directing activities towards a state, focusing more on notice and lack of undue surprise; COMMERCE CLAUSE concerns a significant burden on interstate commerce (structural concerns about the impacts of state regulations on national economy)
(8) Intangible Property – The TP need not have a tangible, physical presence in a state for income to be taxable there; the presence of intangible property alone is sufficient to establish nexus. The court h
ts?
(i) Substantially equivalent events – manufacturing and wholesaling were not “substantially equivalent events” such that taxing the manufacture of goods sold outside the state could be said to compensate for the state’s inability to impose a wholesale tax on those goods. (protectionism issue).
(ii) Tyler Pipe Industries v. Washington –exemption from manufacturing tax, whereby manufacturers selling products within the State of Washington but still paying wholesale tax were not subject to the manufacturing tax, discriminated against interstate commerce in violation of the commerce clause
(4) Discrimination in two ways: Impermissible discriminatory intent and Impermissible discriminatory intent (purpose and effect)
(a) Competition b/w states is welcome, but using the power to discriminatorily tax interstate commerce is NOT!!!
(b) Also, how unequal the tax is is NOT the issue in question – if unequal treatment at all, then it fails as discrimination.
(c) Bacchus Imports v. Dias – HA liquor tax where legislature sought to encourage development of the Hawaiian liquor industry, enacting an exemption of taxes on two different liquors at two different times.
iii) Fairly related to the services provided by the state (correlation b/w tax and services of the state) ß almost always this is satisfied
(1) Distortion – flipside/opposite of the fair relationship; if it is not fair, then the label for that is distortion (example of what will NOT be considered fair)
iv) Fairly apportioned and allocated
Apportionment –
