Delahunt introduces bill to streamline payment of taxes for online purchases

By Vicki Needham - 07/02/10 03:09 PM ET

A newly introduced bill could help state and local governments collect billions in sales taxes, providing a boost to widespread budget shortfalls.

Rep. William Delahunt (D-Mass.) has proposed a measure that would provide for a simplified sales-tax collection system setting up a way for online retailers to collect sales taxes on purchases.

The change could raise as much as $23 billion in new taxes, according to the National Conference of State Legislatures, which supports the legislation.

Current tax rules don't require Internet retailers from collecting state taxes if they don't have a "physical presence" in a state.

The loophole puts the burden on the consumer to report the sales tax owed from an online transaction on their state income tax return, a requirement largely overlooked, according to the Retail Industry Leaders Association.

"Leveling the playing field ensures that all Main Street businesses do not continue to face a significant competitive disadvantage by having to collect taxes on their sales, while Internet-only businesses escape that responsibility," said Joe Rinzel, vice president for state government relations of RILA in a release. "This is an issue of fairness for both businesses and consumers."

So far, 23 states have adopted streamlined tax systems to collect taxes and generate revenues, RILA said.

Critics of the change argue closing the loophole on purchases made over the Internet would mean a tax increase for Americans.

Proponents say that because sales tax is due on all purchases, it's just a matter of determining who collects the tax, the seller or purchaser. They also say uncollected taxes have pushed state budgets into the red, forcing states to raise other taxes to compensate, RILA said.

"The streamline sales tax would relieve the burden on the consumer and ensure the fair and equal collection of sales taxes by retail businesses of all types and sizes, whether at a storefront or purely online," said Rinzel.