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Physical Presence

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With almost $350 billion in total annual online spending, U.S. customers make up the second largest e-commerce market in the world (Census). The magnitude and expected growth of the e-commerce market could provide significant tax receipts to local, state, and federal governments. Currently, sales tax makes up approximately 25 percent of the government’s gross tax receipts. But the large and growing volume of online sales is bringing attention to the outdated policies surrounding the collection of sales and use tax on such transactions. Before the internet established its presence in the average American’s home, cross-state purchases were more scarce--occurring only on the occasional vacation or through catalog phone orders. The rapid advancement …show more content…
V. North Dakota, 504 U.S. 298 (1992). In legal terms, this physical presence is known as a "nexus." Nexus is the the determining factor of whether an out-of-state business selling products into a different state is liable for collecting use tax to the customers in that state. Many states define nexus differently. Generally speaking, a physical presence means such things as: having a warehouse in the state, having a store in the state, having an office in the state, or having a sales representative in the state. So, if a business has a store or office of some sort, a nexus exists.
However, this rule has been a matter of significant debate in many states. Many in-store retailers think it is unfair because the rule favors online retailers. As state revenue has decreased in light of the economic downturn, governments of all levels have taken steps to fill their budget gaps. One such step is the enactment of laws commonly referred to as “Amazon laws”, which attempt to capture uncollected use taxes from online …show more content…
The future holds a lot of uncertainty, debate and dependence on new developments and products. When looking to the future of online taxes, the newly imposed “Cloud Tax” is a clear indication of where we are headed. The Cloud Tax is a 9% tax on any Chicago resident who accesses the cloud. It targets “electronically delivered amusements” such as Netflix, Hulu and Spotify. Both consumers and businesses have the burden of paying this 9% tax. Many professionals such as real estate agents and lawyers use the cloud as part of their job to access property listings and court databases. This tax has created a major controversy. Many people believe this tax will steer businesses away from Chicago since it will be much cheaper to open in another

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