The recession hit the states so hard, the Nevada Legislature is contemplating a State Lottery.  With State capitals scrambling to make ends meet, Cities are left high and dry.  Income taxes are down because people aren't working.  Business taxes are down because businesses are shutting down.  Sales tax are down because nobody's buying, and when they are, they're buying off the web.

There's the rub.

State Tax boards are increasingly requiring people to pay local as well as state sales taxes.  Cities are howling for their piece of the pie wherever pie can be found.  Will local sales tax soon jump species into e-commerce?

It's likely, and in some states, it's happening now.  The California Board of Equalization now has downloadable local sales tax tables with nearly 2,000 cities.  But there is no clear standard yet on when, who, why, or where to tax!

I learned about the state of California's Local Sales Tax and e-commerce for a major e-commerce client doing 7-figure annual sales on the web alone.  Confused?  You're not alone.  My client made multiple interpretations of the law before choosing one.

The issue is two issues: when you make a purchase on the web, where is the transaction really happening; and which address is the taxable one, billing or shipping?

E-Commerce transactions don't translate well to real life, so there is no right or wrong interpretation, only the one the states will choose, and each state may choose differently.

Assuming you, the E-tailer, has to charge sales tax for people who live or ship the order to your state, You can look at this in different ways:

• Scheme #1 - You pay State+Local by the city you live in or ship to.
• Scheme #2 - Same as #1, but only in cities where E-tailer has brick-and-morter business, or Nexus city.
• Scheme #3 - If you live in same state, you pay Nexus City Local Sales Tax.
• Scheme #4 - You pay the warehouse's local Sale Tax.

#1 - Buying off the web is like making a transaction in your own home, or wherever the product ends up.  It breaks down when you use the billing address, because how do you know if the customer made the purchase in that town and not say, Inner Mongolia?  But for Shipping, it makes sense because there is one and only one destination address.

#2 - Buying off the web like going to the local brick-and-mortar store.  This exempts lots of people from paying local sales tax, and by the way, most of the e-tailers who do not have a brick-and-mortar store.

#3 - Buying off the web is like going to the E-tailer's corporate office (or bedroom over the garage).  Happy Nexus city, not so happy every other city.

#4 - A disastrous idea, since at the time of purchase, your software may not even know what warehouse the product will come from, especially with drop shipping.  And happy for the Warehouse's city but not so happy for every other city.

My pick?  #1.

Because it lets every city get a piece of each transaction.  And like gas prices, people get used to a bump in prices because they like the convenience of shopping on the web.  And I think Shipping address will be the most commonly used, since you can purchase from in-state or off-planet, but the shipping address is a stationary target, so is easier to implement.