Current tax law makes it difficult to enforce sales taxes on most Internet
commerce and has generated considerable policy debate. In this paper we ana
lyze the costs and benefits of enforcing such taxes including revenue losse
s, competition with retail, externalities, distribution, and compliance cos
ts. The results suggest that the costs of not enforcing taxes are somewhat
modest and will remain so for several years. At the same time, compliance c
osts and the benefits of nurturing the Internet diminish over time. When ta
x costs and benefits take this form, a moratorium provides a natural compro
mise.