Vanderbilt Law Review


Ricky Hutchens

First Page



It is a near universal experience. An individual wants to purchase an item. He shops around to find the best price. After a diligent search, he realizes that if he makes the purchase online, he can avoid being charged sales tax on the item. Depending on the price of the item and the tax rate, the savings can be substantial- sometimes enough to justify paying for shipping. But many consumers fail to consider another consequence: choosing an online retailer effectively denies tax revenue to a buyer's home state. In the United States, state governments have three basic options for generating tax revenue: an income tax, a consumption tax, or some combination of the two.1 Nearly every state in the country imposes a sales tax that accounts for a large (often the largest) portion of its revenue. Yet, since the advent of online ordering, many sales have gone untaxed, leaving a source of revenue that many states are desperate to tap. Online retailers enjoy an advantage over traditional brick-and- mortar stores: most states cannot force the online retailer to collect a sales tax. In Quill Corp. v. North Dakota, the Supreme Court held that the Dormant Commerce Clause does not allow a state to force an out-of-state retailer to collect sales tax unless that retailer has a physical presence within the state. Quill's holding is still controlling despite fundamental changes to the economy resulting from the rapid expansion and commercialization of the Internet.