The consumer does not physically move into contact with the retailer, but at the same time, the electronic store allows more interaction than a mail-order catalog. Alternatively, it could be asked whether the electronic retailer has relocated itself into a state by allowing access of its electronic store by the consumers in that state or by having its electronic store reside on a server located in that state. The implications of imposing this type of tax will be examined in terms of two extremes. This method is chosen because these two extremes often represent the expressed viewpoints of those parties interested in this debate. Of course this analysis is a simplification which looks at the issue from the product demand side.
Reality lies somewhere between the two alternatives and involves more complexity.
Next assume that to this market demand for the product is increased. For purposes of this present debate, assume the demand is created by the new presence of electronic commerce. This will shift the point at which the market demand and market supply meet to a higher level of consumption. When a tax is added to this scenario, however, the price of the product is increased by the amount of the tax. At this higher price the consumers will want less of the product.