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Top“Physical Presence” To Pay Sales Tax
The “due process” has been interpreted to require a “nexus” or connection between the seller and the state. In other words, the seller has received government service from the state. In a sales transaction, if the buyer and the seller reside in the same state, it is the seller’s responsibility to collect sales tax from the buyer and remit it to the buyer’s state government, because there is a connection between the seller and the state. Thus, the minimum connection of the Due Process Clause and the substantial nexus of the Commerce Clause are clearly satisfied.
If the buyer and the seller do not reside in the same state it is the buyer’s duty to remit the amount of sales tax to his/her own state government. This is known as “use tax.” In this situation, the seller is not held responsible for collecting sales tax from the buyer, because there is no “nexus” or connection between the seller and the state. Hence, the “due process” is not satisfied.
For example, Susan, a New Jersey resident, is a garden lover. She bought flower seeds from the local Plouch Garden Center in New Jersey. She also bought vegetable seeds from Gardener Supply in Maine. How should Susan pay sales tax? Plouch should collect sales tax from Susan because Plouch has “physical presence” in New Jersey. However, Gardener Supply is not required to collect sales tax from Susan because Gardener Supply has no “physical presence” in New Jersey. Instead, Susan should voluntarily remit the due amount of “use tax” to her home state of New Jersey.
At the time the Commerce Clause was drafted the intent was to prevent the states from interfering with interstate commerce. It was easy to identify the location of the buyer and the seller, and if both resided in the same taxing jurisdiction there was no need for regulation by Congress. The interpretation requiring physical presence when buyer and seller were not in the same state made sense.