State governments rely on general sales and use taxes for just under one-third (31.7%) of their total tax revenue—approximately $223 billion in FY2010. Local governments derive 11.0% of their tax revenue—approximately $62 billion in FY2010—from general sales and use taxes. Both state and local sales taxes are usually collected by vendors at the point of transaction and levied as a percentage of a product's retail price. Alternatively, use taxes, levied at the same rate, are often not collected by the vendor if the vendor does not have nexus (loosely defined as a physical presence) in the consumer's state. Consumers are required to remit use taxes to their taxing jurisdiction for the use of the product purchased. Compliance with this requirement, however, is quite low. State and local governments are concerned that the expansion of e-commerce, which was estimated to reach approximately $3.9 trillion in 2012, is gradually eroding their tax base. This concern arises in part because the U.S. Supreme Court ruled out-of-state vendors are not required to collect sales taxes for states in which they (the vendors) do not have nexus. In hopes of stemming the potential loss of tax revenue, several states are participating in an initiative to simplify and coordinate their tax codes—called the Streamlined Sales and Use Tax Agreement (SSUTA). The member states hope that Congress could be persuaded to allow them to require out-of-state vendors to collect taxes from resident customers. Congress has a role in this issue because interstate commerce, in most cases, falls under the Commerce Clause of the Constitution. Congress may be asked to consider taking an active role in the debate. In the 113 th Congress, S. 743 , approved by the Senate on May 6, and S. 336 (Senator Enzi and others) and their House counterpart H.R. 684 (Representative Womack and others) would grant SSUTA member states and non-member states that meet less rigorous simplifications standards the authority to compel out-of-state vendors with greater than $1 million in remote sales to collect sales and use taxes. Previously, in the 112 th Congress, S. 1452 and H.R. 2701 (Senator Durbin and Representative Conyers) would have granted SSUTA member states the authority to compel out-of-state vendors in other member states to collect sales and use taxes. H.R. 3179 (Representative Womack) would have also granted states the authority to compel out-of-state vendors to collect use taxes provided selected simplification efforts were implemented. S. 1832 (Senator Enzi and others including Senator Durbin) would have granted SSUTA member states and non-member states that met less rigorous simplifications standards the authority to compel out-of-state vendors to collect sales and use taxes. A more passive approach by Congress could involve states implementing the SSUTA without congressional approval. State enforcement of remote collection would likely face legal challenges, and the outcome of these legal challenges is uncertain. This report intends to clarify significant issues in the remote sales tax collection debate, beginning with a description of state and local sales and use taxes. The impact of congressional action (or inaction) on the remote collection issue will vary significantly by state. For this reason, the report includes a state-by-state analysis of the sales tax. In 1932, Mississippi was the first state to impose a general state sales tax. During the remainder of the 1930s, an era characterized by declining revenue from corporate and individual income taxes, 23 other states followed suit and implemented a general sales tax. At the time, the sales tax was relatively easy to administer and raised a significant amount of revenue despite a relatively low rate. Given the relative success of the sales tax in raising revenue, 45 states and the District of Columbia added the sales tax to their tax infrastructure by the late 1960s. The last of the 45 states to enact a general sales and use tax was Vermont in 1969. The revenue generated by a sales and use tax, assuming a given level of compliance, depends on the base of the tax and the tax rate. States often have similar consumption items included in their tax base, but they are far from uniform. Tax rates can also vary considerably, depending on the state's reliance on other revenue sources. The SSUTA is intended to provide uniform definitions across states for items included in the base and the applicable tax rates. Following is an analysis of the variation of these components across the states. The sales tax is perhaps better identified as a transaction tax on the transfer of tangible personal property, as expenditures on most services are typically excluded from the state sales tax base. In addition, in most states (34) and the District of Columbia, groceries are also exempt from state and local sales taxes or taxed at a lower rate. Table 1 presents the most recently available data on state and local tax revenue and an estimate of each state's sales tax base. The sales tax revenue includes collections from individuals as well as businesses. The separate estimate of the sales tax base as a share of income is a rough approximation of the state sales tax base. A higher percentage likely indicates (1) a greater number of items and services subject to the sales and (2) greater compliance. In the case of Hawaii, where over 100% of personal income is includable in the tax base, the percentage likely measures some degree of pyramiding of the sales tax. Pyramiding occurs when a business pays sales tax on a good then collects more sales tax when the good is sold. Pyramiding is common in many other states, but is difficult to quantify. In total, roughly half of personal income is spent on items subject to the sales taxes. The second component of a sales tax is the tax rate applied to the base. In 34 states, local governments piggy-back a local sales tax (which often varies among localities within the state) on the state sales tax; 11 states and the District of Columbia levy a single rate (see Table 2 ), with no local taxes. Some states in the group of 34 may collect a uniform local tax along with the state tax and send the local revenue share back to the localities. This structure would look like a single rate to the consumer because vendors typically do not differentiate between the state and local share. For example, vendors in Virginia levy a 5.0% sales tax on purchases and remit the entire amount to the state. The state then returns what would have been raised by a 1.0% tax back to the local jurisdiction where the tax was collected. The state of Virginia keeps the remaining 4.0%. As of March 1, 2013, California had the highest state sales tax rate of 7.5%. Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee had state sales tax rate of 7.0%. The state rate is only part of the total rate; as noted earlier, most states also levy a local sales tax. As of January 1, 2012, Arizona had the highest potential combined state and local rate of 13.7%, with Alabama second at 12.0%. Residents in high sales tax rate jurisdictions could benefit more from Internet purchases (and tax evasion) relative to those in low tax rate states. Recognizing this potential revenue loss, many high-rate states have stepped up efforts to inform consumers of their responsibility to pay use taxes on Internet and mail-order catalog purchases. As suggested earlier, states with high rates—and whose residents have a greater incentive to evade taxes—are exposed to greater potential revenue losses from the growth of Internet commerce. Because of the greater potential losses, these states are more likely to support reforms that help maintain their sales and use tax revenue base. The tax base and tax rate determine how much revenue is generated by the sales tax for each jurisdiction. The share lost to non-compliance arising from e-commerce, however, varies considerably by state. Part of the variance can be attributed to the two components of the overall compliance: sales tax collected by vendors and use tax remitted by purchasers. Researchers on e-commerce estimated relatively high vendor compliance though considerably lower purchaser compliance. Table 2 also lists each state's current status with the SSUTA. The "member" states (22) have all enacted laws that fully comply with the SSUTA. A second group of states (2) are considered "associate" states and not full members because relatively small technical changes are needed in state tax laws to be in full compliance with SSUTA. A third group of states (18) are participating in the streamlining effort but have not made the necessary uniformity changes in state sales tax law to be considered for member or associate status. In addition to a sales tax, most states levy income taxes and almost every local jurisdiction (and some states) also levies a property tax. Table 3 presents the relative reliance of each state and local government combined on the three principal revenue sources: sales taxes, income taxes, and property taxes. Reliance is measured as a percentage of total taxes collected. Other taxes include selective sales taxes such as motor fuels taxes, alcoholic beverages taxes, tobacco product taxes, and corporate income taxes. The U.S. average reliance is greatest for the property tax at 34.8%, and the sales tax and individual income tax accounted for 22.4% and 20.5%, respectively, of tax revenue in FY2010. The top three states in sales tax reliance were Washington, Tennessee, and South Dakota. These three states do not levy a broad based income tax, thus increasing their reliance on sales taxes. The entity that drafted the original Streamline Sales and Use Tax Agreement (SSUTA), the Streamlined Sales and Use Tax Project (SSTP), was created in 2000 by 43 states and the District of Columbia. These states and the District of Columbia wanted to simplify and better synchronize individual state sales and use tax laws.