Washington Law Review


The constitutional use taxation framework, which regulates the circumstances under which states can require out-of-state sellers to collect and remit use taxes on products sold for use within the state, has not been examined by Congress or the Supreme Court since the 1990s, and then only to reaffirm a rule that had been in place since the 1960s. Since the 1960s, the Supreme Court has held that states can only collect use taxes from sellers that have a physical presence within the state and whose connections to the state are beyond connections via common carriers. The Court interpreted this rule in the context of mail-order businesses in order to prevent states from taxing retailers that were simply mailing merchandise into the state, which the Court reasoned did not significantly use state resources. This bright-line rule has created settled expectations that businesses will not be subject to use taxation in a state where they do not have a physical presence, and where their only contacts with the state are through mail or common carrier. In 2013, the New York State Court of Appeals deviated from the first half of this rule by holding that internet advertisers that were paid commission could constitute a “physical presence” that could subject a business to use taxation. The Supreme Court denied certiorari, and this decision reinvigorated the debate about what “physical presence” means in the modern economy. The second half of the rule, that sellers must have connections with a state beyond connections through a “common carrier,” has traditionally not required much analysis by courts or legal scholars, since historically, a physical presence, by definition, provided a relationship with a state beyond one established exclusively through common carriers. In 2015, however, the Federal Communications Commission designated internet service providers as common carriers. This Comment argues that internet service providers’ common carrier designation precludes states from collecting use taxes from out-of-state sellers whose only connections with the state are through the internet, as was the case in New York. Furthermore, this Comment explores the implications of the policy goals of the new executive administration under Donald Trump,1 which has initiated the reversal of the internet’s classification as a common carrier.2 A reversal of the Federal Communications Commission’s rule would conceivably reinstate the internet as a means through which sellers would be able to establish a physical presence within a state.

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