In July, Rep. Bill Delahunt (D-Mass) introduced HR 5660, or the Main Street Fairness Act, which would give states the right to collect sales tax on online purchases. The rationale, as stated in the bill, is this: "As a matter of economic policy and basic fairness, similar sales transactions should be treated similarly, without regard to the manner in which sales are transacted."

To see how the law would work, it's necessary to go back to the Streamlined Sales and Use Tax Agreement (SSUTA), which was developed in 1999 by the National Governors Association and the National Conference of State Legislatures, with the goal of simplifying sales tax policies between states. To date, 23 states, representing about one-third of the country's population, have passed legislation that conforms with the SSUTA, according to the Streamlined Sales Tax Governing Board.

However, the SSUTA Governing Board notes that any solution to the issue of Internet sales taxes ultimately will have to come from the Federal level, given that the US Supreme Court said in 1992 that until Congress acts, states can't require retailers that lack a physical presence in their state to collect and remit sales tax. The reason? Differences in sales tax codes from state to state would put an unfair burden on remote (or Internet) retailers operating across state lines. 
 
Here's how Delahunt's bill would work: once ten states, comprising at least 20 percent of the population of all states that have a sales tax, have become member states of the Streamlined Sales and Use Tax Agreement, the states that implement the SSUTA can require remote sellers to collect and remit sales and use taxes.
 
Not surprisingly, many state government associations have come out in support of Delahunt's bill. With tax revenues falling because of the recession, most states are scrambling for funds, and sales taxes account for nearly one-third of total state tax collections, also according to the Streamlined Sales Tax Governing Board. The organization notes that each year states forego about $23 billion in sales tax revenue from online purchases. In addition, a number of industry trade groups, including the National Retail Federation and the International Council of Shopping Centers, have thrown their weight behind the legislation.
 
On the other side, groups representing online vendors have voiced their opposition. NetChoice, a coalition of trade groups and e-commerce firms, says this: "The compliance costs of the Streamlined Sales Tax Project - especially for small firms - could well outweigh the probable benefits of taxing all remote purchases."
 
However, Delahunt's bill does provide for "a centralized one-stop multi-state registration system that a seller may elect to use to register with the member states". It also allows for an exception to the requirement to collect sales taxes for small retailers.
 
The latest major action on the bill was its referral in July to the House Committee on the Judiciary. Should the bill pass, several criteria have to be met before the participating states could require sellers to collect sales tax, including the development of an online multistate registration system and the adoption of a standard form for electronically claiming exemptions.