State governments have long grappled with the challenges of collecting sales and use tax on purchases from out-of-state retailers. Mail-order catalog sales, telephone, and most recently, Internet commerce have all presented a challenge to state tax administrators seeking to tax, with e-commerce being just the latest iteration of a decades old concern.  The 1992 Quill decision by the US Supreme Court upheld the premise of “nexus”, such that only businesses with a physical presence in a state can be forced to collect sales taxes for that state.  State governments are hoping to overcome the nexus requirement by simplifying and streamlining their tax codes, and are now seeking a Congressional mandate to ensure compliance by retailers nationwide.

The Streamlined Sales Tax Project (SSTP), a multi-state effort to achieve uniformity in state tax codes, has surpassed its adoption milestone.  While several large, multi-channel retailers have started collecting tax on all remote purchases, it’s going to take a federal mandate to force retailers everywhere to collect remote sales tax.   Governors and legislatures have pressured lawmakers in Washington for this power, citing the progress of the SSTP and the urgency of states in financial distress.

The compliance costs of SSTP — especially for small firms – could well outweigh the probable benefits of taxing all remote purchases. States can recoup some lost revenue and help make-up budget shortfalls with more aggressive pursuit of multi-channel, multi-state retailers and greater use tax enforcement, without a federal mandate imposed on all inter-state retailers.