Goods in Transit Tax Laws
The power of a state to impose taxes on goods coming into or traveling through the state is a constitutional law issue governed by the United States Constitution, Supreme Court decisions, and state law. Essentially, goods in-transit cannot be taxed in each state that they merely travel through since this is a violation of the Commerce Clause. Depending upon the circumstances surrounding the transport and sale of the goods, items traveling into or through a state may be subject to ad valorem, use, or sales tax; however, many states maintain freeport laws that exempt goods in-transit from taxation.
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Commerce Clause
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Article 1, Section 8 of the United States Constitution is commonly referred to as the "commerce clause" by legal scholars since it gives the federal government the power to "regulate commerce with foreign nations, and among the several states, and with the Indian Tribes." Therefore, the U.S. Government has the power to issue tariffs and taxes on imported goods that are in transit. However, tariffs on foreign goods vary depending upon the status of current treaties and trade agreements with specific countries.
Dormant Commerce Clause
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Since the federal government has the power and authority to regulate interstate commerce, a state may not enact a law that contradicts, interferes with, or supersedes a federal commerce regulation or tax. Under the "dormant" or "negative commerce clause," which was developed through the judicial opinions of numerous Supreme Court cases, a state may not hinder the flow of interstate commerce by placing discriminatory restrictions or taxes on goods traveling into or through the state from out-of-state vendors.
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Original Package Doctrine
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In the Supreme Court case, Brown v. Maryland, 25 U.S. 419 (1827), the Court was required to determine whether a Maryland law that required importers of foreign goods to pay for and obtain a license from the state was a violation of the Commerce Clause of the U.S. Constitution. The Court held that goods traveling through the state could not be taxed if they remained bound within their original packaging while in transit. This case was later overturned by the Supreme Court. Under the current status of the law, states may imposed a tax on imported goods or goods in-transit intended to be sold within the state as long as the tax does not discriminate against out-of-state businesses.
State Freeport Tax Exemptions
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Many states have enacted freeport tax exemption laws that prohibit the taxation of goods in-transit or merely moving through the state. For example, the state of Texas allows for a tax exemption on freeport goods remaining in the state for less that 175 days. If the goods remain in the state longer than the proscribed period set by state law, they will no longer be considered in-transit and may be subject ad valorem or use taxes.
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