Taxation of Interstate Mail-Order Sales

The Government Finance Officers Association (GFOA) is aware that governments have been seriously handicapped in their ability to collect legally-due sales and use taxes on interstate sales because of the 1967 U.S. Supreme Court decision in the National Bellas Hess case.

The National Bellas Hess decision denies states the legal authority to require the collection of sales and use taxes by out-of-state, mail-order firms that have no physical presence in the taxing state but that may advertise extensively there through the mails or common carriers.

The National Bellas Hess decision has resulted in a loss of hundreds of millions of dollars in sales and use tax revenue and has placed local business and out-of-state retailers with a physical presence in taxing states at a serious competitive disadvantage.

State and local revenue losses and the competitive disadvantage of local businesses have been intensified in recent years because of the great growth in untaxed mail-order or similar out-of-state sales. Today, many projections show that due to the rapidly accelerating pace of growth in mail-order, phone, and computer-generated sales, such sales could comprise a major share of all sales by the next decade, rendering sales and use taxes ineffective.

The GFOA supports legislation that would prevent this huge tax revenue loss and remove the competitive advantage now enjoyed by out-of-state business. In developing this legislation, GFOA asks that all changes be prospective.

Adopted: June 3, 1986