Surely you're oversimplifying and playing a bit dumb. The fact that an in-state business has to collect sales tax, and an out-of-state entity doesn't, coupled

Surely you're oversimplifying and playing a bit dumb. The fact that an in-state business has to collect sales tax, and an out-of-state entity doesn't, coupled with the fact that it's not feasible to enforce sales/use tax against individuals, means that out-of-state merchants get an relative price advantage. At the end of the day, it's a lot like what's happened to the recording industry. The internet disrupted a long-established model that had been built up around physical artifacts. In the case of sales tax, consumers used to spend most of their money with merchants in their own state. This made it easy to establish and enforce sales and use taxes, because the state government had jurisdiction on both parties to the sale, so they could devise a collection mechanism based around the relatively small number of merchants (as opposed to trying to track the relatively larger number of individual consumers). In the past 1.N decades, a lot of that economic activity that used to be intra-state has become inter-state. And this has, predictably, caused a very real problem for state governments who depend heavily on those sales/use tax revenues. Tax reform is absolutely necessary. In this case, the smartest thing is probably to abandon sales taxes in favor of higher state income taxes. The benefit there is that income taxes are more progressive anyway. But the states need to weigh the risk of capital flight. The other, less palatable, option, is federal intervention. Unlike Colorado, the Federal government does possess the power to regulate inter-state commerce. It's possible that a bunch of states-other-than-california could get federal laws passed that would force merchants in any state to collect and disburse funds to satisfy the sales tax statutes in the purchasers' states. That latter option would probably end up leading to bad unintended consequences. I'd rather see the states find ways to replace the lost revenue by abandoning the sales tax and increasing income taxes.