Weekly Round-Up: Quill Safe Harbor Extends to Sales of Intangibles Through the Internet, Leading State Tax Experts Argue


From mail-order to the Internet, the Supreme Court refused in Quill to break with Bellas Hess and the novelties of Internet commerce in intangibles should not affect the precedent expressed in these cases, Walter Nagel, Donald Griswold, and Jeremy Abrams, of Crowell & Moring, along with Raj Lapsiwala, argue in this week's issue of the Weekly State Tax Report. Until Congress or the Supreme Court says otherwise, Internet sellers of intangible personal property should enjoy the same constitutional safe harbors as mail-order sellers of tangible personal property, the authors say.

Although not fans of the "click through nexus" theories that many states have adopted, the authors do agree with the Appellate Division of the New York Supreme Court that "while the Internet certainly represents a significant change in communication, the argument that it is a brave new world requiring its own definitions of terms that previously had a clear meaning is not persuasive." In many respects the Internet is not such a brave new world after all, and because it is a common carrier, it may berth its electronic commerce in the Quill safe harbor, they write. 

Internet sellers of intangible goods like music and video downloads should be reassured by even a cursory glance at the case law: there exists no precedent for taxation, and the authors do not believe that a course reversal is in the offing. In fact, courts remain inclined to bolster an electronic zone of free trade, in which they discern the intentions of the Framers of the Constitution, they write. The Court in Belles Hess may not have possessed the foresight to predict the advent several decades later of the mode of selling that was the subject of Quill, but-strange as it may seem-the Court and its successors have anticipated the technological changes it could not imagine by, in effect, hard-wiring its interpretations of the law by conducting them along the lines of progressive first-principles, according to the authors.

The authors argue that the activities involved in selling intangible goods by means of the Internet are not sufficiently grounded in localities so as to permit states to tax them. And though they confine themselves to an explication of what has come to be known as Commerce Clause "nexus," they assert along the way that the selling of intangibles on the Internet stands protected from taxation by the Due Process Clause as well. Check out the complete article by Nagel, Griswold, Abrams and Lapsiwala here.

In other developments…

Morrison & Foerster issues its Fall 2012 edition of State and Local Tax Insights, which contains, among other things, an article on the Due Process Clause as a bar to state tax nexus.

 Sales tax revenues show slowest growth in the last two years, the Nelson A. Rockefeller Institute of Government reports.

 "Paul Frankel Excellence in State Taxation" Award presented to Chuck Drury during COST 43rd Annual Meeting. 

Californians back taxes to avoid education cuts , the New York Times reports.

Compiled by Priya D. Nair
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