Bob Goodlatte

The question of taxation of online sales stems back to 1992, nearly a decade before e-commerce really began to take off, when the U.S. Supreme Court ruled that retailers didn't have to collect and remit local sales taxes unless they have a substantial connection ("nexus"), such as a physical presence, to the state where the customer lives. Where there was no nexus and sellers didn't collect the tax, the Court ruling left it up to customers to pay the taxes owed in the form of "use" taxes, but most consumers don't understand that obligation and very few bother to comply. This created a loophole for the upcoming world of e-commerce.

Advocates and opponents of letting states require out-of-state retailers to collect sales taxes praised a set of principles from House Republicans. Representative Bob Goodlatte, chairman of the House Judiciary Committee, yesterday released seven principles that will guide his approach to the issue. He wants legislation to be simple so that an exemption for small businesses is unnecessary and wants a measure to include a way for retailers to protest tax rules set by states where they don't have operations.