The situation is quite different for businesses, which are subject to tax audits by state authorities. Because of their power to audit, states have a relatively easy way to enforce business payment of use taxes. Since only about 60 percent of state tax revenues come directly from consumers, the business and non-profit purchases which generate the remaining 40 percent are important. But economists argue that taxing business purchases is not wise since these taxes end up being passed along to consumers in the form of higher prices. Use taxes have been on the books for years in most states.
Enforcement is a major issue, however.
Quill Corporation, a mail order company located in Illinois, filed suit, arguing that since Quill had no physical presence in North Dakota the state had no right to collect a tax. Quill's lawsuit found its way to the U.S. Supreme Court, which ruled in 1992 that a physical presence was indeed required for nexus, and overturned the North Dakota law. With the growth of Internet commerce, however, the question of nexus has again become a key legal issue in tax policy. Policy Options Policymakers could follow one of four broad options regarding Internet taxation. A second option is to ban sales taxes for all Internet purchases.