This proposal is frequently referred to as the "Andal Plan" because it was originally submitted to the Advisory Commission on Electronic Commerce by one of its members, Dean Andal of the California State Board of Equalization. Senators Judd Gregg and Herb Kohl introduced legislation based on Andal’s proposal in the 106^th Congress. This legislation amounts to a specific enumeration of the types of Internet transactions that cannot be taxed. By following the Supreme Court’s suggestion in Quill, Gregg-Kohl fleshes out and clarifies nexus by defining activities that do not achieve nexus. This legislation would codify that without a significant physical presence in a particular state, companies should not be forced to collect taxes within the particular state. Gregg-Kohl would also codify that residents of a state should not be forced to pay another state’s sales taxes. Fairness and equity would be maintained by allowing states to require tax collection by companies with a significant presence in their state.¹⁶

The nexus clarifications contained in this legislation would benefit consumers and help clarify aspects of e-commerce. Unfortunately, it is unlikely that the nexus issue will be able to rally consumers to defeat powerful state interests that have allied against any plan that prohibits them from dramatically increasing the amount of taxes collected on e-commerce. Aside from the "do nothing" option, this appears to be the most viable.

This is a viable alternative for simplifying nexus issues, and it accomplishes the task by allowing sales taxes to be imposed only at the point of sale. This would, in essence, be the "ultimate form of nexus simplification." Instead of creating a list of circumstances that fail to achieve nexus, it would simply call for the same in-state tax system and tax rate to apply whether the item is purchased in the traditional manner or online. The payoff of such a plan for taxpayers and small businesses would be twofold:

1. Use taxes would be eliminated and extraterritorial taxation would no longer exist.
2. Interstate competition would be promoted as states attempt to tailor their tax policies to wooing businesses to locate in their jurisdictions and keeping taxes at a reasonable level.

One area of contention will undoubtedly arise between states with a large presence of e-commerce and those states that could be defined as "technology-poor." While Washington State, California, and Virginia would benefit due to the presence of technology firms within their borders, Mississippi, Alabama, and others will not be so enthusiastic about seeing their constituents pay sales taxes to other states. It is also unclear exactly which "origin" is referred to. If Amazon.com (headquartered in Seattle, Washington) decided to open a branch office in Delaware, which has no sales tax, how would the "point of origin" be determined? Surely, Amazon.com and any other store that operated under such a plan could argue that their "point of origin" was in the lower-taxed jurisdiction and therefore should not be subject to sales tax collection.

Although an origin-based system would be good for taxpayers in many ways, it is unclear where the necessary political support will come from in order to transform this concept into law. Support is not likely to come from technology-poor states and it is unclear whether the public would support such a shift since consumers have grown accustomed to purchasing items over the Internet on a tax-free basis. It will be a difficult task to gather support for raising taxes on Internet purchases while not satisfying those calling for blanket taxation of the e-commerce.

Although the states have focused the argument over e-commerce taxation through the dual lenses of fairness and revenue, taxpayers should not let this obstruct other views. Constitutional issues need to be addressed as well. States have recently seen sales tax revenues grow at an exponential rate. Instead of using the current prosperity to reform their tax bases and reduce non-essential programs, spending has increased rapidly. Current economic strength will not last forever, but that should be no excuse for massive expansion of sales tax collections with the side effect of destroying federalism as designed by our Founding Fathers. Instead, state and local officials must reform their revenue collection systems within a constitutional framework.

Because Internet taxation issues are predominantly constitutional, Congress’s role in resolving this debate should be limited. Ambitious new taxation systems are unnecessarily complicated, of dubious constitutional footing, and would be harmful to Internet commerce. Extending the Internet Tax Moratorium and making it permanent as soon as possible are immediate steps Congress can take to ensure that Internet commerce is allowed to develop and that constitutional integrity is maintained. Leaving e-commerce alone is certainly a valid option for the future; however, Congress should explore the option of refining nexus by passing Gregg-Kohl.

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