Subj: Constitutionality - Commerce Clause: Perspectives of IPI: Center for Technology Freedom From: Bartlett Cleland Institute for Policy Innovation To: Internet Caucus Advisory Committee The Commerce Clause Federal, state and local governments have the constitutional or statutory authority to collect taxes—such as sales and use taxes and taxes on business income—when people and businesses fall within the governmental body's jurisdiction. That includes traditional retail sales, catalogue sales and sales made over the Internet. The rationale behind the current taxing system comes from the Commerce Clause. A customer living within the state's boundaries benefits from the highways, police and other public services funded by the sales tax. Therefore, the customer has an obligation to pay the tax. People living outside the state's boundaries are unlikely to benefit from that state's public services and so should not be obligated to pay the tax. However, a number of caveats exist. If a customer buys a product subject to a sales tax in a retail store, the vendor collects the tax at the point of sale and passes it on to the state. If retail vendors take an order over the phone, they are supposed to charge that sales tax if the purchaser lives within the same state. If the customer lives in a different state, vendors do not collect a sales tax. However, unbeknown to most people, the customer may still be obligated to pay a "use" tax to his home state. But the fact is that almost no one does that; for that matter, almost no one knows they're supposed to.