E-commerce delivers a renewed call for sales tax uniformity.

• Author: O'Connell, Frank J., Jr.

Since Quill Corp. v. North Dakota, 504 US 298 (1992), state tax collectors have lobbied for Congressional legislation allowing them to expand the use tax nexus to require more remote businesses to collect these taxes. With the growth in popularity of the Internet (not only as an information highway but also as a convenient way to shop), taxation of purchases made over the Internet has become a focal point of this charge. Passage of the Internet Tax Freedom Act in 1998 drew added attention to Internet activities. While this law did not prohibit states from imposing their sales or use taxes on Internet sales, many think it did. Those pressuring for legislation to allow the states to require collection from businesses selling into their market via the Internet have focused attention on their perception of lost revenues. Others have called for abandonment of sales taxes as a revenue source altogether, suggesting that enforcement is impractical in the modern economy.

Much recent attention has focused on the competition between "main street business" and e-commerce. While this terminology tends to focus the controversy on the issue of fairness, the most vocal retailers are multistate chain stores, whose efficient purchasing, distribution and marketing systems forced out the true "main street" businesses years ago. Time will ultimately prove whether it is a cost-effective retailing medium. In the meantime, it has focused attention on the problems of use tax collection.

Today's sales and use tax laws are largely home-grown in each state. The economic and political climate of the states imposing the tax, coupled with the varying state constitutional restrictions, has lead to a system with only minimal uniformity. To date, as differences continue to grow, the states have ignored most appeals for uniformity and simplification of sales and use taxes.

While sales and use taxes are far from popular with the general public, they are so intermingled with the purchase of the goods on which they are assessed that most simply consider them part of an item's cost. Consequently, the perception of "pain" associated with other taxes, annually assessed as a single figure, is missing with sales and use taxes. Accordingly, taxpayer outrage (when compared to revenue collections from these taxes) is relatively low, making them a politically favored revenue source. As total sales and use tax collections now account for about 25% percent of state and local tax revenue...