Under the status quo, an Internet retailer is not required to collect sales and use taxes for sales made into states where the retailer does not have a physical presence. The U.S. Supreme Court's 1992 decision in Quill Corporation v. North Dakota held that states cannot require sale/use tax collection by out-of-state sellers that do not have a physical presence (or "nexus") in the state of the buyer. While the seller is not obligated to collect a sales tax on the transaction in states where the seller does not have "nexus", the purchaser is obligated to pay an equivalent "use" tax to his home taxing jurisdiction. This requirement for the purchaser to pay a use tax is widely unknown, often ignored, and rarely enforced. Because the government does not require e-tailers to perform the same collection role as the traditional retailer it has, in effect, sanctioned sales-tax-free Internet sales.

Clearly, retailers that do not have to collect the sales tax enjoy an advantage over those that do. The inequity will grow as companies with a widespread physical presence in many states develop on-line subsidiaries with no legal presence in a state to skirt the requirements of the Quill decision. The Quill decision recognized that Congress has the authority to allow states to require the collection of sales and use taxes and that Congress should address the issue. The goal should be to remove from the consumer the burden of recording and reporting out of state purchases to their state governments and to require e-tailers to collect these taxes on behalf of local governments through a streamlined, simplified process.

It should not make a difference for tax collection purposes whether the goods are purchased over the Internet or from a local store. In either situation, the buyer receives a benefit from public services (like roads, police, and fire). Thus, the issue is not the creation of a "new" tax - it is instead about simplifying the collection of a tax that is already owed. Congress should support efforts to level the playing field and require all retailers to collect sales and use taxes.