Since Internet shopping became popular in the 1990s, the issue of collecting sales tax on purchases made online has been an enormous issue for both consumers and merchants alike. The controversy began in 1992, long before retailers such as Amazon.com opened their doors, with the groundbreaking Supreme Court decision of Quill vs. North Dakota.
The Quill corporation, a office-supply company, provided their customers with an early form of online ordering using a floppy-disk-based catalog. Customers nationwide placed orders through the computer system, which the Delaware-based Quill then shipped. The government of North Dakota attempted to force Quill to collect and pay sales tax from all orders placed within the state, arguing that the catalog floppy disks used by Quill's customers established a "physical presence", or "nexus" within the state.
Constitutional provisions against state regulation of interstate commerce only allow states to require businesses with a physical presence (nexus) within the state to collect sales taxes from that state's residents. The Supreme Court ultimately threw out North Dakota's tax claim, establishing that because Quill had no physical locations or personnel located within North Dakota they could not be required to collect North Dakota sales tax.
This ruling stood for years, and most Internet-based businesses were only required to collect taxes from customers who resided in the same state as the company itself was based in (and for this reason, many companies established offices in sales-tax-free states such as Delaware). However, as Internet sales became more common and state budgets grew tighter, several states began passing so-called "Amazon laws" in order to force some of the largest Internet retailers to collect and pay sales tax on their behalf.
"Amazon laws", named after the Internet retail giant that sparked them, re-defined the concept of "nexus" to include independent sales agents located in a state as a "physical presence", which could be used to require Internet retailers to then collect sales tax in that state. Amazon.com and other large internet retailers frequently use a network of independent affiliates worldwide to drive traffic to their sites. As a result of the Amazon laws passed in several states, Amazon and other businesses were forced to either start collecting sales tax in those states or dismiss all affiliates located within state borders.
When Rhode Island and North Carolina adopted Amazon taxes in 2009, Amazon immediately severed ties with all affiliates in the two states in order to avoid collecting sales tax from residents. With larger states such as New York with similar laws, however, most retailers had no choice but to collect state sales tax in order to retain their local affiliates. To date, states with an active Amazon law include New York, Rhode Island, North Carolina, Colorado, and Illinois, while close to a dozen have considered or attempted to pass similar legislation (both California's and Hawaii's legislatures passed Amazon laws, which were vetoed immediately by their respective governors).
As a result of the recent trend towards enacting Amazon laws, the majority of large Internet retailers (with the notable exception of Amazon) now collect sales taxes from residents of many states. Owners of small businesses with an Internet presence, however, generally do not have to worry about collecting sales tax for sales made to out-of-state buyers, as most of the Amazon laws have a minimum revenue threshold ($5,000 to $10,000) that in-state affiliate sales must reach before it can be considered a nexus with enough weight to justify mandatory sales tax collection.
The short-answer for online businesses is that, while it's important to research sales tax law in the states you sell to, chances are you will not be affected by the Amazon nexus laws unless you have a significantly large army of out-of-state affiliates. For customers shopping online, it's the vendor's responsibility to collect sales tax when it is due, and at least for the near future many online sales will remain sales tax free.