BYU Law Review


The federal income tax does not apply to profits generated by pure mail order sales originating from outside the United States, and state and local consumption taxes are effectively inapplicable to pure mail order sales originating from outside the taxing jurisdiction. These conclusions seem fully applicable to federal taxation of income from sales that are initially solicited through Internet advertising and then transacted over the Internet between a customer in the United States and an out-of-country seller's out-of-country website. Similar conclusions are also, arguably, applicable in the case of state and local consumption taxes. Extension of the mail order tax exemption to Internet sales has been a cause of concern among taxing officials. Clearly, there are some very large commercial fields that are susceptible to being removed from the taxing jurisdiction of state and federal authorities through the utilization of electronic commerce. If this happens, all levels of government will suffer a significant revenue loss without a proportionate decline in the demand for government services. Solving this problem by government borrowing or by taxing non-electronic commerce more heavily is unattractive. The preferred solution is to find ways to keep Internet commerce in the state consumption tax and federal income tax bases, and to bring mail order commerce into both tax bases at the same time. The challenges of doing that, however, are truly daunting.


© 2000 J. Reuben Clark Law School