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Taxation

State Tax

States possess the inherent power to levy both property and excise taxes. The TENTH AMENDMENT to the Constitution, which reserves to the states powers that have neither been granted to the United States nor proscribed to the states by the Constitution, implicitly

acknowledges this fundamental right. A state may raise funds by taxation in aid of its own welfare, provided the tax does not constitute unjust discrimination among those who are to share the tax burden. Property taxes, for example, may properly be imposed on landowners within the jurisdiction. In addition, the state may levy income, gift, estate, and inheritance taxes upon its residents.

The question of whether states should be able to tax sales conducted over the INTERNET has generated increased interest as states scramble for additional funding in the wake of budget deficits. Technically, these transactions are taxable. A U.S. Supreme Court ruling in 1992, however, stated that states can only require sellers to collect taxes if they have a physical presence in the same state as the consumer. The reason, said the Court in Quill Corp. v. North Dakota, 504 U.S. 298 112 S. Ct. 1904, 119 L. Ed. 2d 91, is that the current system of 7,500 taxing jurisdictions across the country makes it too complicated for online retailers to collect sales taxes fairly and efficiently. In 1998 Congress imposed a three-year MORATORIUM against any Internet taxes; the moratorium was renewed for two years in 2001. Online businesses and consumers have supported these moratoria for the obvious reason that taxes would cost money and affect sales, as well as the less obvious reason that tracking Internet sales would violate individual privacy by generating records of who is purchasing what.

The National Governors Association (NGA) initiated the Streamlined Sales Tax Project (SSTP) in 2000 with the goal of adopting uniform tax rates among the states and thus making it easier for online retailers to collect taxes. NGA hopes to complete SSTP by the end of 2005.

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