The US Constitution clearly prohibits states from taxing interstate commerce, as SCOTUS confirmed in the Quill decision. Unless a business has a physical presence in a state, that state cannot tax transactions between that business and a resident of the state.
Cash-strapped state governments and brick-and-mortar retailers wish desperately that were not true, the states because they want more money and the retailers because they want to force sales to their local stores. Several states, North Carolina among them and most recently California, have passed laws on the dubious theory that affiliates constitute a legal nexus for taxation.
But, no matter how dubious that theory, at least it’s used to enforce sales tax collection, which is Constitutional. What seems to skate beneath notice are use taxes, which are not. All states that have a sales tax also have a use tax. A resident from one of those states who purchases something from a vendor in another state is legally obligated to pay the use tax, which is invariably calculated at the same rate as the sales tax, and is simply a transparent attempt to violate the Constitutional prohibition on taxing interstate commerce.
North Carolina goes further than most states. Every year, when I do our state income tax return, I have to fill out a section on use tax. North Carolina offers residents a choice. Other than for major purchases, which always require paying use tax on the actual purchase price, we can either pay use tax on actual purchases or on estimated purchases as a percentage of adjusted gross income. That percentage is small enough and we buy enough on-line that it always makes sense for us to use the estimated method. In effect, we usually end up paying something like 1% or 2% use tax rather than the nominal 7.75%. Still, it’s perfectly legal for us to choose the estimate method.
It’s also perfectly unconstitutional for North Carolina to impose that tax, intended as it is to get around the Constitutional prohibition on taxing interstate commerce. The problem, you see, is that North Carolina charges use tax only for purchases that did not incur sales tax.
For example, if I buy a $100 widget in a local store, I’m charged $7.75 sales tax. If I buy that $100 widget on-line from an out-of-state vendor, I am (at least in theory) required to pay a $7.75 use tax. So far, so good. The problem is, when I buy that widget at the local store, I’m charged only the $7.75 sales tax, rather than the $7.75 sales tax PLUS the $7.75 use tax. Because the use tax is not charged on in-state sales, it is discriminatory and a violation of our Constitutional right not to be taxed on interstate commerce.
I keep hoping that someone will pursue a case against a state government and take it all the way to SCOTUS, because use taxes as currently implemented are prima facie not Constitutional.