Slide 25 of 27
Notes:
Together with taxes on property and income, sales taxation has long been one of the legs of the three-legged stool of state and local finance. Moreover, sales taxes are usually the least unpopular taxes among taxpayers.
Although Internet sales presently represent a small fraction of total retail sales, the growth of e-commerce is forcing policy makers to reconsider the future of sales taxation.
It appears that three basic alternatives exist relative to the taxation of e-commerce and other remote sales.
First, Congress could declare the Internet to be a tax-free zone, precluding the states from levying sales and use taxes on transactions that are initiated on the Internet. This would mean a substantial windfall for bricks-and-mortar retailers who also have Internet sales and must currently pay taxes on those sales because they have nexus.
Second, Congress and the states could maintain the status quo, with the consequent unequal treatment of Internet and face-to-face sales.
Third, the states could submerge their differences and develop common tax bases, administrative procedures, and generally simplify the taxation of remote sales.