State Sales & Use Tax on Internet Transactions

The explosive growth of electronic commerce raises serious questions about the viability of the current state sales and use tax system. Sales via the Internet and other electronic means are changing both the form and substance of consumer transactions, and such sales often do not satisfy the traditional nexus requirement for state taxation because on-line vendors frequently lack physical presence in the purchaser’s home state. The inability to collect taxes on this growing segment of the retail sales market will impair states’ efforts to raise revenues and cause economically similar transactions to be treated differently. Consequently, Congress must act pursuant to its Commerce Clause authority to allow state taxation of interstate transactions by means of either federal legislation or uniform state laws. This will result in a system that taxes similar transactions in the same manner, regardless of the context of the transaction or the identity of the seller or service provider