By Brendan Sasso - 02/13/13 06:44 PM EST
Under current law, states can only collect sales taxes from retailers that have a physical presence in their state. People who order items online from another state are supposed to declare the purchases on their tax forms, but few do.
The legislation would empower states to tax their residents' online purchases. The bill from last Congress would have exempted small businesses that earned less than $500,000 annually from out-of-state sales.
Supporters of the legislation say the additional revenue could help states pay for vital services or cut other taxes. They argue it would close an unfair loophole that benfits online giants over small local retailers.
A host of GOP governors, including Chris Christie of New Jersey, Mitch Daniels of Indiana and Rick Snyder of Michigan, have come out in support of the proposal.
But critics argue the measure would create a complicated new tax system and would stifle Internet commerce.