OT - Watch out ND residents

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Posted By: warshawlaw

Since it is obvious that if cleaning up e-commerce was the goal of the regulations, the government would do a lot more for the public good a lot faster by enforcing existing criminal and civil fraud laws against the crooks who are not likely to comply with a regulation registration scheme in the first place, the real reason behind these regulatory schemes is revenue, not policing. States have been eyeing internet commerce for years as a source of revenues. Current sales tax law is ill-suited to fully tapping it and Congress has been very fast (at the behest of their corporate sponsors) to use the Interstate Commerce Clause to mostly carve internet business out of the states' financial grasps on the basis that the medium is new and needs protection to grow.

With that in mind, state tax authorities are constantly trying to find ways to tap the cash. All states tax intrastate sales; even ebay-based sales. All states necessarily exempt purely interstate sales from sales tax because of the Federal bar to such state taxes under the Interstate Commerce Clause (which cedes sole control over interstate commerce to the Federal government). The traditional way states try to tax interstate transactions indirectly is by imposing an end-user use tax which corresponds to the sales tax in the jurisdiction when someone brings in something from out of state. In practice, this use tax is a flop. It is nearly impossible to track and collect it because the seller is necessarily outside the jurisdiction of the buyer's state (hence cannot be forced to maintain or provide records), and shipping records do not detail what is delivered. Consequently, it is only occasionally sought, usually when a company is audited for sales tax compliance and large interstate purchases are noted. The idea of a regulatory requirement with a concommitant registration fee has the attraction of indirectly tapping the interstate e-commerce revenue stream by using the states' police powers while also avoiding the complications inherent in trying to enforce an end user tax.

Another attraction of a license scheme is that it collects the low-hanging fruit first. It is very hard for a state to track and tap into mobile, semi-anonymous internet sellers who have no physical locations where state auditors can show up at and "smell smoke" before demanding registration and "protection" money (anyone who pays a business tax locally knows just what I mean--when a tax regulator shows up at your business looking for your license, you are dead meat. When he shows up at your house, you ask "what business" and tell him to bring a warrant next time he shows up). Stick and brick retail e-sellers like the ones quoted in the article are prime targets for this kind of licensing arrangement because they necessarily do a lot of untaxed interstate commerce and cannot fold up their tables and go home when the "revenooer" knocks on the door.

Finally, in this day and age of Big Brother, it doesn't escape one's graps that the data mined from a licensing operation can be used to create sales tax audit rolls that could be exchanged between agencies and between states. If a name on the license roll doesn't match a name on the auditor's list, you will get a letter...