Background
The Internet has opened up an exciting new channel of commerce, but it has also opened many questions about how to properly tax sales made over the Internet. Under the Supreme Court's Quill decision, remote sellers, such as an Internet retailer, are not required to collect sales and use taxes for sales made to purchasers located in states where the seller does not have a physical presence. The absence of sales tax collection on Internet sales risks eroding the sales tax base of the states and providing internet retailers with unfair tax advantages that are not available to traditional brick and mortar retailers.

In 1998, legislation was enacted to impose a 3-year moratorium on new Internet access taxes and on multiple or discriminatory taxes on electronic commerce. The legislation did not prevent states and localities from collecting existing sales and use taxes on sales made over the Internet. The legislation also created The Advisory Commission on Electronic Commerce to consider issues associated with the taxation of sales over the Internet. The Commission completed its work in April of 2000 and issued a report to Congress. Unfortunately, the Commission was not able to reach the two-thirds vote required by Congress to make any official "findings or recommendations" on the subject of the collection of sales and use taxes on sales made over the internet.

The Panel was composed of 19 commissioners from state, local, and federal governments and from the businesses in the electronic commerce and high technology industries. Traditional, in-store retailers who conduct the vast majority of retail sales were not represented on the Commission. Therefore, it was no surprise that the Commission did not make a formal recommendation to level the playing field for sales tax collection on all sales, including those made over the Internet.