Let States Tax Amazon, E-Commerce at Source

[Commentary] There are dueling studies about how much revenue state and local governments forgo by not collecting taxes from Internet sales. But experience seems to side with the low estimates. A far better solution would be for states to levy sales taxes based on where products are coming from rather than on where they’re going -- or for Congress to tell them to do so.

Under an origin-based tax rather than a destination-based tax, for example, Washington state would have the power to tax Amazon.com’s sales. For physical stores, sales taxes would keep being collected as before. This would be a much simpler tax system with lower compliance costs. It would tend to constrain sales taxes by increasing competition among the states: A state that raised its rates too high would induce businesses, particularly catalog or Internet businesses that can sell remotely, to locate elsewhere.