The rise in e-commerce has been cheered by numerous sectors of the marketplace: consumers who enjoy getting books and CDs delivered to their doorsteps; investors who still see long-term growth potential; and manufacturers who expect B2B portals and auction sites to enable more efficient production and distribution in the years to come.

But bricks-and-mortar retailers have complained that e-commerce vendors enjoy an unfair advantage in the marketplace because consumers purchasing goods online dont pay sales tax unless they reside in the same state as the seller.

At the same time, states have declared that theyre losing millions in uncollected sales taxes on purchases made over the Internet. With growth in online sales outpacing growth in the retail market as a whole, the states forecast dire tidings for future budgets if the situation remains unchanged.

A University of Tennessee study published in last Decembers National Tax Journal estimates that the 45 states that impose sales tax lost $1.2 billion in revenue on Internet purchases in 1999 and predicts that those losses will reach $10.8 billion by 2003. "Every state is noticing a decrease, at least in the rate of growth of the sales tax, because of online remote sellers," said David Goldwater, assemblyman from Nevadas 10th District and chairman of the Assembly Taxation Committee.

Collecting Change

To recoup lost revenues, representatives from 29 states have worked together over the past year to create a tax-collection system thats designed to be easier for all retailers to negotiate, whether online, mail-order or based in the real world (see "Rewriting the Rules", January 2001).

The new system is laid out in the Streamlined Sales and Use Tax Agreement, which was negotiated by the state representatives and members of the National Conference of State Legislators (NCSL) and the National Governors Association and agreed to in December. As written, the agreement will bring about uniform tax rates within each state, uniform definition of goods, a one-stop vendor registration system and fewer vendor audits.

By doing so, the states hope to undermine some of the reasoning behind the Supreme Courts 1992 Quill decision, which was held as a victory for mail-order catalog companies. "[The court] said that states cannot force an out-of-state vendor to collect sales tax because of the complexity of the state sales-tax system, the burden that it is to an out-of-state vendor and the cost," said Neal Osten, director of commerce and communications at the NCSL. "Those are the things weve been trying to address in the simplification legislation: reducing the burden, reducing the complexity, reducing or eliminating the cost and creating a uniformity between the states."

Nevada is taking a proactive approach in response to the Streamlined Sales and Use Tax agreement. Goldwater plans to introduce a bill based on the agreement in Nevadas 2001 legislative session. "The technology that well overlay with the transaction will actually collect that tax," he said. "The retailer is removed from the tax collection business."

Nevadas Gov. Kenny Guinn has already pledged support for the bill, but Goldwater knows that wont necessarily make its passage any easier. "The politics of putting the two words Internet and taxation together creates a difficult public relations hurdle," he said. "But when you tell people that youre talking about teachers, firefighters and public employees and services, and you bring up the issue of fairness -- that Nevada businesses are not treated fairly in this system -- then they want change."

The fairness issue surfaces repeatedly in the Internet-sales-tax discussion. "Nevada businesses should not have a tax system thats biased against them. They should have a tax system that favors them, or at least is equal."

Encouraging Volunteers

No matter what kind of bill is passed by Nevadas legislature, change is still a long way off. In its 1992 Quill decision, the Supreme