These laws are commonly referred to as "Amazon laws," in reference to the Internet retailer. A use tax is the companion to a sales tax—in general, the sales tax is imposed on the sale of goods and services within the state's borders, while the use tax is imposed on purchases made by the state's residents from out-of-state (remote) sellers. Two common misconceptions exist about the ability of states to impose sales and use taxes on Internet sales. This is not true. The second misperception is that the U.S. Constitution prohibits states from taxing Internet sales. However, if the seller does not have a constitutionally sufficient connection ("nexus") to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. In this situation, the purchaser is still generally responsible for paying the use tax, but few comply and the tax revenue goes uncollected. The report first examines the Constitution's requirements as to state laws that impose use tax collection obligations on remote sellers. These laws potentially implicate two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the dormant Commerce Clause. In the 1992 case Quill v. North Dakota , the Supreme Court ruled that, absent congressional action, the standard required under the dormant Commerce Clause is the seller's physical presence in the state, while due process imposes a lesser standard under which the seller must have directed purposeful contact at the state's residents. As mentioned, Congress has the authority under its commerce power to authorize state action that would otherwise violate the Commerce Clause, so long as it is consistent with other provisions in the Constitution. Congress has not used this authority, although legislation has been introduced in the 114 th Congress ( S. 698 , Marketplace Fairness Act; H.R. 2775 , Remote Transactions Parity Act of 2015). Nonetheless, several pre- Quill cases provide guidance on determining when a state may impose tax collection responsibilities on out-of-state retailers. This section first examines these approaches by focusing on the laws in the first states to enact legislation: New York's click-through nexus statute, enacted in 2008, and Colorado's 2010 required notification law. Required Notification

The second approach requires remote retailers to provide information to the state and customers, rather than requiring the retailers to collect the use taxes themselves. In fact, both the New York and Colorado laws have been challenged on these grounds. Constitutionality of New York's Click-Through Nexus Statute

With respect to click-through nexus laws such as New York's, it might be argued that the law complies with Quill by targeting only Internet retailers whose affiliate programs create some degree of physical presence in the state and whose affiliates solicit (i.e., do more than merely advertise) on the retailer's behalf. Before the New York court, Overstock and Amazon asserted that the New York law was facially unconstitutional under the Commerce Clause because it applied to sellers without a physical presence in the state. This is because they apply only to companies that do not collect Colorado sales and use taxes, which would appear to be primarily those retailers without a substantial nexus to the state. The first question is whether this violates due process. In 2012, a federal district court struck down the law, examining both of the above arguments. However, in August 2013, the Tenth Circuit Court of Appeals dismissed the case after finding that the Tax Injunction Act (TIA) prohibits federal courts from hearing it. In March 2015, the Supreme Court held that the TIA does not apply to this suit. The Court instructed the Tenth Circuit to determine if the doctrine applied to this suit. Notably, Justice Kennedy wrote a concurrence in which he raised the possibility that Quill was wrongly decided and should be reconsidered in light of technological advances and the development of the Internet.
As more purchases are made over the Internet, states are looking for new ways to collect taxes on online sales. There is a common misperception that the U.S. Constitution prohibits states from taxing Internet sales. This is not true. States may impose sales and use taxes on such transactions, even when the retailer is outside the state. However, if the seller does not have a constitutionally sufficient connection ("nexus") to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. The purchaser is still generally responsible for paying the tax, but few comply and the tax revenue goes uncollected.
Nexus is required by two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the Commerce Clause. In the 1992 case Quill v. North Dakota, the Supreme Court held that the dormant Commerce Clause requires that a seller have a physical presence in a state before the state may impose tax collection obligations on it, while due process requires only that the seller have purposefully directed contact at the state's residents. Notably, under its power to regulate commerce, Congress may choose a different standard than physical presence, so long as it is consistent with other provisions of the Constitution, including due process. Congress has not used this authority to provide a different standard, although legislation has been introduced in the 114th Congress (S. 698, Marketplace Fairness Act; H.R. 2775, Remote Transactions Parity Act of 2015).
In recent years, some states have enacted laws, often called "Amazon laws" in reference to the Internet retailer, to try to capture uncollected taxes on Internet sales and yet still comply with the Constitution's requirements. States have used two basic approaches. The first is enacting "click-through nexus" statutes, which impose the responsibility for collecting tax on those retailers who compensate state residents for placing links on their websites to the retailer's website (i.e., use online referrals). The other is requiring remote sellers to provide information about sales and taxes to the state and customers. New York was the first state to enact click-through nexus legislation, in 2008. In 2010, Colorado was the first to pass a notification law.
"Amazon tax laws" have received significant publicity, in part due to questions about their constitutionality and whether they impermissibly impose duties on remote sellers without a sufficient nexus to the state. Both the New York and Colorado laws have been challenged on constitutional grounds. While the New York click-through nexus law was upheld by the state's highest court against facial challenges on due process and Commerce Clause grounds, Colorado's notification law was struck down by a federal district court as impermissible under the Commerce Clause for applying to sellers without a physical presence in the state and discriminating against out-of-state retailers. However, the Tenth Circuit Court of Appeals subsequently determined that federal courts do not have jurisdiction to hear the Colorado challenge due to the federal Tax Injunction Act. In March 2015, the U.S. Supreme Court held in Direct Marketing Association v. Brohl that the Tax Injunction Act did not apply to this suit. However, the Court left open the possibility that the suit might be barred under the comity doctrine and instructed the Tenth Circuit to determine if the doctrine applied. Notably, Justice Kennedy wrote a concurrence in which he suggested that Quill was wrongly decided and should be reconsidered in light of technological advances and the development of the Internet.