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In a 1992 decision, Quill v. North Dakota, the U.S. Supreme Court ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, such as a store, office, or warehouse.   (The legal term for this physical presence is "nexus.")    Although the case dealt with a catalog mail-order company, the ruling has subsequently been applied to all remote sellers, including online retailers. The Court said that requiring these companies to comply with the varied sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions would burden interstate commerce.

In a 1992 decision, Quill v. North Dakota, the U.S. Supreme Court ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, such as a store, office, or warehouse.   (The legal term for this physical presence is "nexus.")    Although the case dealt with a catalog mail-order company, the ruling has subsequently been applied to all remote sellers, including online retailers. The Court said that requiring these companies to comply with the varied sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions would burden interstate commerce.

It disadvantages local businesses.  Exempting online retailers from having to collect sales tax, as regular stores must, gives these companies a 4 to 9 percent price advantage over local stores — a sizable competitive advantage in retailing.