I have advocated this for years, but coming late is so much better than never (Congress does not care about local gov't): Internet Sales Tax Coming Too Late for Some Stores - "There is no question that the free ride Amazon received for 18 years on the sales tax issue gave it a huge competitive advantage.”

From The New York Times:

Analysts who closely follow the fortunes of Amazon say collecting taxes is unlikely to drive away its customers. They say it may even help the Seattle company while simultaneously defusing a potent political issue.

In the few states where the company has already begun collecting, said Gene Munster, an analyst with Piper Jaffray, sales dip for about a year. “Then the customers come back for the convenience and selection,” he said.

Figuring out the tax in thousands of jurisdictions could be a logistical nightmare for merchants just above the legislation’s threshold of $1 million in annual revenue. That is another place where Amazon is expected to benefit; it could sell tax collection services to tens of thousands of third parties.

For some store owners, the digital world’s momentum can seem overpowering.

Ms. Demetropoulos tried to sell specialty toys online, but business dwindled as Amazon sought out her competitors and signed them up to sell through its Web site. The company courted her as well. “I’m like, ‘Are you kidding?’ ” she said.

Customers come into one of the branches of Island Treasure Toys, she said, scan a toy on their smartphone, and inform the sales clerk that Amazon sells it cheaper. Would the store be willing to make a deal?

The tax will not help this situation much, which is regularly played out in all kinds of stores across the country.

If retailers say no, Amazon often gets the business.

 

Under the current system, an Internet company has to collect taxes only in states where it has a physical location. For most companies, that means the state in which it has its headquarters.

 

In recent years, states struggling in the recession became more aggressive toward Amazon. Texas, New York and California all pursued the company over the tax issue. Amazon began making deals to collect the tax while simultaneously building warehouses that would bring it closer to its customers, bringing same-day delivery within reach.

 

“But there is no question that the free ride it received for 18 years on the sales tax issue gave it a huge competitive advantage.”
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From The Wall Street Journal:

The bill, called the Marketplace Fairness Act, would allow states to require online sellers around the country to collect sales tax for them on purchases made by their residents.

Big online sellers have expanded their physical operations nationwide, building warehouses and other facilities to speed delivery, while traditional stores increasingly have an online presence. That has turned the tables for the online retailers, which had benefitted richly from not having to charge shoppers a sales tax on their goods in most states.

With their advantage eroding, the Web stores have become part of a surge of corporate support helping to propel the Senate bill toward likely passage, at least in that chamber and possibly also in the House.

The legislation would effectively replace a 1992 Supreme Court decision, made in the early days of the commercial Internet, that held that a state couldn't force a retailer to collect sales tax unless the retailer had a physical presence in the state, such as a store or a warehouse.

The bill highlights the maturation of e-commerce into an increasing threat to established retailers like Wal-Mart. While more than 90% of retail is still in bricks-and-mortar storefronts, e-commerce retailers promise nearly unlimited inventory, fast delivery to customers' doors and lower prices.

Amazon Chief Executive Jeff Bezos has said he founded his company in low-population Washington state so sales taxes wouldn't affect customers in bigger states. And for years, Amazon gave employees color-coded U.S. maps that showed "red states" where they couldn't travel for fear of triggering sales-tax collection.

But as Amazon has grown, the red states have dwindled. With an eye on ever-faster shipping, Amazon has been striking deals with states to build massive distribution centers close to urban centers in exchange for delaying the start of sales-tax collection or other advantages.

In 2012 alone, some of the largest states, including California, Texas and Pennsylvania, began requiring sales-tax collection from Amazon customers. And by 2014, Connecticut, Massachusetts and several other states will require the levies.