Hypothetical: Acme Corp, an online retailer with its principal place of business in Nevada, decides it wants to expand its online retail operations by offering customers in California to return and exchange products purchased online through XYZ Corp retail stores in California. To promote this new service, Acme has engaged in an advertising campaign in California. Acme Corp and XYZ Corp are both
wholly-owned of the Acme Group. The California Franchise Tax Board now wants to collect state sales tax from Acme Corp for purchases from California residents. Discuss whether the California Franchise Tax Board violates the Commerce Clause of the United States Constitution in collecting state sales tax.
What will be an ideal response?
A court would apply the substantial nexus test under Quill v. North Dakota. Before a state may impose a tax on an out-of-state entity, a state must establish that the imposition of the tax is consistent with the Commerce Clause of the U.S. Constitution. The state must show that the tax is applied to an activity with a substantial nexus with the taxing state.
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What will be an ideal response?
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What will be an ideal response?
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