The system proposed by Leavitt depends on third-party administrators to collect taxes on e-commerce transactions for both businesses and governments. 'E-tailers' would need to register with states and nominate an administrator (such as a bank or credit-card company) who would calculate tax on internet purchases on their behalf. The administrator would be responsible for adding the tax to the transaction cost, and then collecting the tax on behalf of the relevant government agency in return for a small cut of the tax.

Although the proposed scheme would be voluntary, it contains clear incentives for states to join in, as non-participating states would not be allowed to collect out of state taxes. Leavitt said it could take up to five years for such a scheme to be fully implemented if it is accepted.

Leavitt's scheme addresses the tricky issue of geography in e-commerce transactions by proposing that international internet sales should be taxed at a product's destination, a position which is consistent with recommendations by the European Commission.

In announcing the plan, Governor Leavitt said it will ensure fairness in assessing sales taxes. "This eliminates any buyer or seller being treated differently," he said. He also emphasised that his scheme will not impose any new sales taxes and expressed his firm opposition to Internet-access taxes. However, opponents to internet taxes have been quick to point out that only $170m is being lost in tax revenues due to e-commerce (less than one-tenth of 1 per cent of state and local government sales tax) and moving too quickly on this issue could suffocate a sector of the economy that is only in its infancy.

The ACEC has so far received thirty proposals for tax plans, most of which are available at its web site (http://www.ecommercecommission.org/proposal.htm).