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Internet Sales Tax to be Introduced in US Senate

WASHINGTON -- Sen. Dick Durbin (D-Ill.) could propose sweeping legislation as soon as Monday to tax all online purchases, in a move aimed at closing states' budget shortfalls.

Such a tax would plow more than $1 billion in tax revenues into New York's state coffers for the 2012 budget, according to some estimates. William Fox, a University of Tennessee economics professor, said that based on his own estimates, New York lost about $865.5 million in tax revenues in 2010 -- almost enough to close that year's $1 billion budget deficit -- based on its four percent tax rate.

However, he acknowledged that a research report he helped author last year did not appropriately factor in the blistering pace of online sales growth over the past several years. Fox estimates that the annual growth rate for online sales was actually about 14 percent from 2006 to present, rather than the study's 9.9 percent.

Some reports indicate that online sales hit a whopping $165 billion in 2010 -- an annual growth rate closer to 15 percent, which would put New York's tax receipts at close to $1 billion.

Durbin's bill, dubbed the Main Street Fairness Act, is being portrayed as an end to the tax holiday that online shoppers on major internet vendors have enjoyed for years.

Online companies already pay state taxes in the states in which they reside, but many politicians -- including those in New York, Illinois and Connecticut -- recently pushed to collect taxes from customers on purchases made outside the state if the sites have vendors that physically reside within their states.

Durbin's proposal intends to push internet vendors to collect state taxes on items purchased out of state.

For more than a decade, the burgeoning internet sales market has enjoyed a congressionally-sponsored advantage via sales tax moratoriums, established in 1998, to foster growth in the digital sales business -- but with e-commerce vendors like Amazon no longer fledgling entities, and states and cities like New York and Illinois facing budget deficits, e-commerce taxes have become a hot-button issue.

Durbin's current bill is the second iteration of an identical one last year that never made it to the floor for a vote.

Click here to read more on this story from The New York Post.