The PACT Act as Indicium of the Due Process Validity of the Marketplace Fairness Act

Abstract

If passed into law, the Marketplace Fairness Act would impose a federal duty on out-of-state sellers to collect a state-defined and state-benefitting use tax. This unique exercise of federal power implicates due process. The PACT Act represents the only other instance in which Congress has similarly compelled state law compliance. Two circuit courts of appeals have found the PACT Act vulnerable on concerns of due process. This Article relies on the PACT Act analogue to simulate how the Marketplace Fairness Act would fare under similar scrutiny. To this end and in this uncommon context, two novel constitutional questions are considered: 1) with which sovereign, the federal government or the state, are minimum contacts measured; and 2) if measured with the state, is a single sale sufficient to meet due process thresholds?

On balance, the courts and the literature suggest that minimum contacts should be measured between the out-of-state seller and the state exacting sales tax collection responsibilities. If this is true, the Marketplace Fairness Act may violate the Due Process Clause for lack of minimum contacts as it imposes a sales tax collection responsibility on out-of-state sellers with as little as a single in-state sale. A recommendation is offered by which Congress may preemptively alleviate concerns related to the magnitude of minimum contacts.

Keywords: due process, minimum contacts, taxation of e-commerce, internet sales, sales and use tax, nexus

JEL Classification: K34, H71, H25