The 2011 co-called e-commerce volume at approx. $3.5 trillion. The volume of e-commerce is expected to increase and state and local governments are concerned because collection of sales tax on these transactions is difficut to enforce. Under current law, states cannot reach beyond their borders and compel out-of-state Internet vendors (those without nexus in the buyer¿s state) to collect the use tax owed by state residents and businesses. The Supreme Court ruled that requiring remote vendors to collect the use tax would pose an undue burden on interstate commerce. Estimates put this lost tax revenue at approx. $8.6 billion. This report discusses the Streamlined Sales and use Tax Agree. and related economic issues. Illus. This is a print on demand report.

The United States Bureau of the Census estimated that $3.4 trillion worth of retail and wholesale transactions were conducted over the Internet in 2009. That amount was 16.8% of all U.S. shipments and sales in that year. Other estimates projected the 2011 so-called e-commerce volume at approximately $3.9 trillion. The volume of e-commerce is expected to increase and state and local governments are concerned because collection of sales taxes on these transactions is difficult to enforce. Under current law, states cannot reach beyond their borders and compel out-of-state Internet vendors (those without nexus in the buyer's state) to collect the use tax owed by state residents and businesses. The Supreme Court ruled in 1967 that requiring remote vendors to collect the use tax would pose an undue burden on interstate commerce. Estimates put this lost tax revenue at approximately $11.4 billion in 2012. Congress is involved because interstate commerce typically falls under the Commerce Clause of the Constitution. Opponents of remote vendor sales and use tax collection cite the complexity of the myriad state and local sales tax systems and the difficulty vendors would have in collecting and remitting use taxes. Proponents would like Congress to change the law and allow states to require out-of-state vendors without nexus to collect state use taxes. These proponents acknowledge that simplification and harmonization of state tax systems are likely prerequisites for Congress to consider approval of increased collection authority for states. A number of states have been working together to harmonize sales tax collection and have created the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA member states hope that Congress can be persuaded to allow them to require out-of-state vendors to collect taxes from customers in SSUTA member states. In the 112th Congress, S. 1452 and H.R. 2701 (Senator Durbin and Representative Conyers) would grant SSUTA member states the authority to compel out-of-state vendors in other member states to collect sales and use taxes. In addition, H.R. 3179 (Representative Womack) would also grant states the authority to compel out-of-state vendors to collect use taxes provided selected simplification efforts are implemented. A related issue is the "Internet Tax Moratorium." The relatively narrow moratorium prohibits (1) new taxes on Internet access services and (2) multiple or discriminatory taxes on Internet commerce. Congress has extended the "Internet Tax Moratorium" twice. The most recent extension expires November 1, 2014. The moratorium is distinct from the remote use tax collection issue, but has been linked in past debates. An analysis of the Internet tax moratorium is beyond the scope of this report. Congressional Research Service.

This report examines state taxation of Internet transactions as well as efforts to achieve uniform state sales and use tax treatment. There are at least two common misconceptions in the area of state taxation of Internet transactions. Contrary to popular belief, (1) states do have the power to impose a sales tax on in-state sales that are accomplished via the Internet, even after the enactment of the Internet Tax Freedom Act in 1998; and (2) states do have the power to tax transactions of their own residents where the seller is located outside of the state and has no real connection with the state. The Internet Tax Freedom Act placed a three-year moratorium only on imposition of new taxes on "Internet access services" (existing taxes on access services were grandfathered) or any "multiple or discriminatory taxes on electronic commerce" by state or local governments, not on application of a general sales tax to such transactions. The Internet Tax Nondiscrimination Act of 2001 extended this moratorium through November 1, 2003. In the 108th Congress, the moratorium was allowed to expire. But in its closing days, the moratorium was extended, retroactively from November 1, 2003, until November 1, 2007. In addition to Congress, other stakeholders are involved in Internet taxation issues. The Streamlined Sales Tax Project, which claims the involvement of 39 states and the District of Columbia, aims to achieve a more uniform sales and use tax scheme. While the Project's aim does not specifically pertain to Internet access taxes, it is inextricably related and has been widely discussed. Congressional action would be required to implement the Project's plan to require sellers to collect sales and use taxes based upon the buyer's home state rates.

This text provides a constitutional analysis of 'Amazon' laws and taxation of Internet sales; state taxation of Internet transactions; and testimony on the hearing on the constitutional limitations on states' authority to collect sales taxes in E-commerce.