Collection Connection

Cash-strapped states are getting serious about collecting sales taxes from internet vendors, and they have a voice in Washington in Sen. Dick Durbin, who has introduced a bill to set federal standards for online taxation.

Struggling with weak economies, states will lose an estimated $10 billion this year and $11.4 billion next year in sales taxes that go uncollected on online purchases, according to studies by three professors at the University of Tennessee.

Although the fate of the bill by Democratic Senator Dick Durbin was uncertain given the anti-tax environment on Capitol Hill, his measure is backed by the National Governors Association and the National Retail Federation and even earned a pledge of cooperation from giant online retailer Amazon.

"It's being brought to a head by actions at the state level," said Indiana state Senator Luke Kenley, who heads the Streamlined Sales Tax Governing Board, a group of 24 states that has been lobbying Congress to enact a uniform sales tax for all retailers -- online and bricks and mortar alike.

Also pushing the issue to the forefront has been the sheer size of the online retail market -- $165 billion last year, according to Bernstein Research, which predicts 15 percent annual growth over the next decade.

"Online sales are growing exponentially and this loophole is creating winners and losers based on the tax code," says Jason Brewer of the Retail Industry Leaders Association, a trade group in favor of federal rules.

Durbin argued his bill involved no new taxes and applied only to taxes already imposed by the states that are not being collected. His goal is to provide states with the clear authority to require retailers to collect sales taxes already owed, treat all retailers equally regarding sales tax collection, and release consumers, currently expected to calculate and send in the taxes themselves, from that responsibility.

That last point is important, and exactly why the GOP will kill it and say we can't raise taxes ever blah blah blah when the reality is these are taxes states should be collecting but can't, because there's no federal laws regulating the mess.  Retailers will say "we don't want to collect sales taxes, we can undercut our competition that way."

So we'll see how far this goes.  My honest opinion is nowhere.