Abstract
This article explains why the expansion of Internet commerce has caused individual U.S. states to lose substantial amounts of tax revenue, and explores what the states are doing to combat that revenue loss. In particular, the article traces the U.S. Supreme Court precedents that prevent states from forcing Internet retailers to collect taxes on the goods they sell. After exploring the existing legal framework, the article examines California’s most recent effort to require internet retailers to collect taxes on Internet sales through so-called “affiliate nexus” legislation — legislation that imposes a tax collection obligation on out-of-state internet retailers based on the in-state presence of an affiliate company. The article explains the theoretical foundation for affiliate nexus and then reviews several lower court decisions that have considered (and rejected) the theory. The Supreme Court has not directly addressed affiliate nexus, but the article contends that to uphold California’s recently-enacted legislation would require an extension of the Court’s previous jurisprudence.
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