Plan Could Lead To Collection Of Online Sales TaxesPlan Could Lead To Collection Of Online Sales Taxes

Tax officials and lawmakers from 30 states, meeting in Chicago on Tuesday, approved a plan that could lead to the collection of sales taxes for online purchases. The voluntary program would take effect when at least 10 states enact laws to participate in it. "This is a 21st-century system that will dramatically improve the morass that currently exists," Utah Gov. Michael Leavitt said in a statement.

For the most part, merchants selling online don't collect sales taxes, meaning that the 7,000-plus tax jurisdictions in the United States, including 45 states and Washington, D.C., lose $13 billion in revenue annually, according to the General Accounting Office, the investigative arm of Congress. A University of Tennessee study estimates that amount could grow to $45 billion by 2006.

The Streamlined Sales Tax Project proposal is a first step in getting Congress to enact a compulsory, nationwide Internet sales-tax system. However, there's little indication Congress is ready to adopt such a program.

The proposal would compel states to create standard definitions for taxable goods and services and sustain a single statewide tax rate for each category of product. For example, a marshmallow might be defined as a candy in one state, but as a food--and therefore not taxed--in a neighboring state. That arrangement makes it difficult for remote retailers, such as mail-order companies and E-commerce companies, to calculate, collect, and remit sales taxes at varying rates to different state and local governments, according to an analysis by the National Governors Association, which backs the plan.

The effort, if successful, would be the first overhaul of the nation's sales-tax policy in 40 years and the first time states had acted together to significantly restructure the system.