DES MOINES, Iowa - A coalition of 18 states representing about 20 percent of the nation's population has forged an agreement to begin collecting sales taxes on Internet purchases.
The group hopes to convince retailers - but does not force them - to begin collecting taxes and turning it over to state governments.
The agreement puts in place a procedure for businesses to collect sales taxes from Internet and catalog purchases, and puts in place an amnesty that protects them from being pursued for taxes not paid in the past.
After negotiations, which lasted for three years, the states including Iowa had agreed to definitions of taxable items and procedures for paying the taxes.
The deal is designed to provide a uniform system for retailers who routinely sell across state lines. In exchange for collecting and sending tax revenue to the state, retailers would be compensated for the costs of collecting the taxes, and protected against liability for accounting mistakes.
"The implementation of the streamlined agreement will allow states to recoup valuable resources that can, in turn, be put toward education, public safety, tax relief, or other pressing state needs," said Illinois State Sen. Steve Rauschenberger, President of the National Conference of State Legislatures.
The boom in electronic sales through the Internet and burgeoning catalog sales could generate billions of dollars a year in tax revenue for states. The NCSL estimates states lose as much as $8.9 billion a year from sales taxes that aren't collected on the electronic transactions.
Filling that gap has proven to be problematic, and it's far from certain how much will be collected from the agreement which went on the books over the weekend. The measure puts in place the procedures for businesses to remit sales taxes but doesn't require the payment, and many large retailers have said they have no intention of paying.
Fiscal conservatives in particular face conflicts on the issue, because they are generally opposed to any tax increases and many view broadening the sales tax as a tax hike.
They face conflicting pressure, however, from main street businesses, another core constituency. Those business owners argue that it isn't fair to force them to pay sales taxes when online retailers they compete with don't pay the taxes.
The agreement does not change state tax rates, and it leaves individual states the decision on what items are taxed.
The U.S. Supreme Court ruled in 1967 and again in 1992 that states do not have the authority to require a retailer to collect sales taxes for a state where the retailer doesn't have a physical presence.
The court did leave the door open to Congress to grant the authority to the states to make those collections, but Congress hasn't done so.
The creation of uniform standards and rules is a way the states can send a signal to Congress they are ready to begin collecting the taxes if given the authority.
The 18 states signed on to the agreement are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia. Also Arkansas, Ohio, Tennessee, Utah and Wyoming. Nevada will become a member in January.