The Commerce Clause of Article I grants Congress the power to regulate commerce. In the past, an entity had to have a physical presence in a state for that state to impose taxes on the entity. Due to the changing landscape of online businesses, the U.S. Supreme Court decided in South Dakota v. Wayfair in June 2018 to remove the physical presence rule as it applied to the Commerce Clause analysis of state taxation. The Wayfair decision’s ramification is that states can now impose taxes on businesses conducting sales online without having any physical presence in those states. While the Court’s decision is a step in the right direction, the removal of physical presence makes businesses susceptible to multiple tax burdens.

The Wayfair ruling created concern that small businesses would suffer because states could now tax online retailers regardless of the business’s location. Under the current law, following Wayfair, states’ tax thresholds can be low enough to place a significant burden on companies that cannot handle such taxes’ implications. Further, localities may now have the ability to impose their own tax burdens, increasing small businesses’ hardship even more.

This Comment argues that Congress must impose limits in response to the Court’s ruling in Wayfair. Removing the rule largely takes away the unfair advantage that out-of-state corporations had over the small businesses located in the state; however, removing the rule runs the risk of imposing disastrous burdens on small companies conducting online business in other states. Limiting the state taxing power in the online space will be crucial for these businesses’ survival. This Comment first gives the background of the physical presence rule. Second, this Comment discusses legislation that Congress has overlooked and legislation that Congress has the opportunity to pass. Finally, this Comment suggests that Congress should adopt a form of the SSUTA to remedy the negative ramifications of the Wayfair decision.



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