Tax something that does not physically exist ... how ?

Lots of examples of this already happening. Have you looked at the taxes on your phone bill in the last 10 years?

A lot of "services" have heavy taxes too. Rental cars and hotel rooms tend to get hit hard.

The whole thing is screwy, and if you think the tax itself is expensive, you should see the accounting cost for a small business to meet 54 tax reporting deadlines throughout the year (sales tax, unemployment tax (state and federal), medicare, social security, city taxes, corporate taxes, ad valorum taxes, inventory/property taxes, etc.) Some states even tax us on the _unissued_ shares of our company! Go googling for "intangibles tax." Tennessee and Georgia both have them.

The form of a product certainly ads to the complexity. If I'm a band in Canada and I mail you a CD it has to go through customs and have an excise tax paid. But if I send you the CD over the internet, it doesn't have to clear customs (yet).

To a certain degree, tax evaders could use loopholes to avoid sales tax if you didn't also tax services. For example, instead of "buying" a car, I'll "rent it for 100 years." Tada! No sales tax.

If you want another fun thought, some states tax coins. Seems funny to me to go to a coin shop and be taxed on buying money :)

All in all, I expect two or three states to not have sales tax in order to become a business mecca. Notice how banks are all incorporated in Delaware? No intangibles tax!

RE: TN TAX : "the retail sale, lease, licensing, or use of specified digital products transferred to or accessed by subscribers or consumers"