The Governor’s callfor the recent special session asked that the Legislature consider extending the use tax to online vendors. The Legislature did not take action on this issue.
Currently, online vendors without a nexus in Nevada are not required to remit sales or use taxes to Nevada and consequently the purchasers of goods from those vendors do not pay the tax either.
The use tax in Nevada is commonly misunderstood in its application. The use tax is a compliment to the sales tax. The sales tax is due when tangible goods are sold in Nevada and is paid by the customer to the retailer who in turn pays the state. However, when tangible goods are sold from outside of Nevada (and in some other circumstances), such as in an online transaction, the retailer has no legal obligation to pay the state and therefore does not require payment from the customer. But that does not mean the tax is not owed. In those situations, the customer directly owes the state the use tax on those goods. However, because the use tax in this situation is only collected if self-reported by customers, and because enforcement is effectively impossible, many use taxes go unreported and uncollected. Moreover, many Nevadans are simply unaware that they even owe the state a tax in these situations.
Under the interstate commerce clause of the United States Constitution, states have generally been prohibited from taxing out of state vendors without a nexus in the state. However, with the recent budget shortfalls across the country states have been more aggressive about trying find ways around that prohibition and to impose use taxes on out of state vendors. In several states, rather than litigate against such rules, online vendors have simply terminated relationships with in-state affiliates, which has the negative effect of shutting down business for those affiliates. The vendors thereby eliminate any potential nexus with the state and are able to avoid taxation under the interstate commerce clause.
Some legislators in Colorado are trying a new tactic. Instead of requiring online vendors to collect and pay the tax, the proposed legislation would require online vendors to turn over a list of customers and purchases to the state taxing authority, and to provide those customers with a tax invoice showing what they owe on their purchases. Presumably, the taxing authority would then proceed to collect directly from those customers or alternatively, the online vendor would instead collect and pay the tax as a matter of convenience to its customers. If that legislation proceeds, it could become a model used by other states looking to shore up declining sales and use tax revenues. But, the streamlined sales and use tax act under consideration by Congress could accomplish the same result, and in a much cleaner and more uniform manner. It will be interesting to see if the Colorado legislation gains any steam as Colorado’s legislative session goes on.