Online tax effort gains traction, as supporters seek to level playing field between retail stores and Internet merchants

Cash-strapped states looking to close budget gaps


If you've ever bought a product on the Internet, and live in any one of the 45 states that collect sales taxes, you might be a tax cheat... not  that the IRS particularly cares. But a new bill, called the Marketplace Equity Act, might change that.

The House Judiciary Committee held a hearing Tuesday on the bill which supporters say would iron out confusion over sales taxes on Internet purchases, as well as level the playing field between retail stores and Internet merchants.

Some brick and mortar retailers feel that with savvy consumers now eager to shop tax free online, the deck is stacked against them. 

"Merchants have intimated to me the stories of would-be consumers in growing numbers visiting their stores to get a firsthand look at the merchandise under consideration for purchase. And once committed to purchasing, simply used their Smartphone to purchase it online. There's an App for that," says the bill’s author, Rep. Steve Womack, R-Ark.

Internet behemoth Amazon.com is supporting the bill and wants other online merchants to do the same.  It circumvents a huge burden -- the nightmarish prospect of collecting and remitting taxes to more than 9,000 state, county and local taxing localities, by imposing the taxes only at the point of origin where the merchants are based.  

For example, if the Internet merchant was based in Maryland, it would collect and remit taxes only to the state of Maryland, not to the state where purchasers reside.

Still, some say the point of the origin tax  creates the specter of a "double tax" because states would still have the option of taxing sales at the receiving end  -- an appealing option given that many jurisdictions are running deficits.

But Steve DelBianco, executive director of NetChoice, a coalition of e-commerce companies, said the Marketplace Equity Act of 2011 does not provide enough guidelines to simplify the process of collecting and distributing taxes.

The bill “does not adequately protect America’s small businesses, for whom new collection burdens would be disproportionately complex and expensive,” DelBianco told the committee.

Other are opposed to the tax on the simple grounds that it is, in effect, a tax increase on already beleaguered consumers.

Currently just six states collect sales taxes online, but some governors who once were opposed to the idea now favor it, including some Republicans. The National Conference of State Legislatures estimates the new annual state revenue could add up to as much as $23 billion. 

The Associated Press contributed to this report.

Doug McKelway joined Fox News Channel (FNC) in November 2010 and serves as a Washington-based correspondent. Click here for more information on Doug McKelway