State taxing authority suffers from little of the structural impediments that the Constitution imposes on the federal government’s taxing power but the states’ power to tax is subject to the restrictions imposed on the exercise of any state action by the Constitution. The most significant obstacles to the states’ assertion of their taxing authority have been the Due Process Clause and the Commerce Clause. The Due Process Clause concerns itself with fairness while the Commerce Clause concerns itself with a functioning national economy. Although the two restrictions have different objectives, for quite some time both restrictions shared one attribute—a taxpayer physical presence test.

Business practices evolved in response to technological developments and the ability of enterprises to avail themselves of a forum state’s markets with little or no traditional physical presence in the state resulted in the elimination of the physical presence test for Due Process purposes almost thirty years ago. The subsequent exponential growth of electronic commerce finally led to the demise of the physical presence test for Commerce Clause purposes as a result of the Court’s recent decision in South Dakota v. Wayfair. However, a six decades old statute remains an impediment to the states’ ability to exercise income tax jurisdiction over the income earned by remote sellers of tangible personal property.

In a case unrelated to state taxing authority during the same term, the Court in Murphy v. National Collegiate Athletic Association struck down a federal law that prohibited states from authorizing sports gambling. According to the Court, the federal law impermissibly commandeered state legislatures. A critical holding in that case was that a federal law that prohibits state action is subject to the anti-commandeering doctrine similar to federal laws that mandate state action. The federal statute that limits the states’ ability to tax is very similar to the gambling statute that the Court struck down—it prohibits states from enacting otherwise permissible legislation without establishing a corresponding federal regulatory regime. In short, the statute commandeers the states similarly to the gambling statute. As a result, the statute is an impermissible encroachment of state sovereignty.

Part I of this Article discusses the Due Process and Commerce Clause limitations on states’ taxing powers and the eventual demise of the physical presence test as a result of Court’s holdings in Quill Corp. v. North Dakota and, more recently, South Dakota v. Wayfair. This part also discusses Pub. L. No. 86-272, the longstanding prohibition imposed on states with regard to the taxation of income derived by remote sellers of tangible personal property. Part II discusses the anti-commandeering doctrine. This doctrine has surfaced as a significant bulwark for federalism over the past three decades and led to the demise of the federal sports gambling legislation as a result of the Court’s recent decision in Murphy. This part concludes with an analysis of the case and its potential application to the tax statute.