The Principle of Nexus in E-Commerce Tax

The volume of Internet commerce has become increasingly important in today’s economy. However, it has a sales tax problem, concerning whether the seller or the buyer should be responsible for collecting sales tax. This problem becomes more complicated when the Internet commerce crosses state borders; this situation has caused many lawsuits. Courts have ruled that an out-of-state seller is held responsible only when there is a “nexus” between the seller and the state. A place of business or employee is evidence of “physical presence” and thus constitutes “nexus.” An independent contractor is treated as employee. Website connection between two computers serving as an “affiliate” in soliciting business for a fee is deemed to have “nexus.” In recent years, many state governments enacted tax statutes that require an out-of-state seller to provide information about an in-state buyer’s name and address and product purchased. Unfortunately, it was ruled unconstitutional by the court. The seller can refuse the request without financial consequences.