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States expand push for sales taxes on Internet purchases

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Going online to buy the latest bestseller or those photos from summer vacation may be tax free for most people today, but it won't last forever.

Come this fall, 13 states will start encouraging — though not demanding — that online businesses collect sales taxes just as Main Street stores are required to do, and more states are considering joining the effort.

The 13 states are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota, and West Virginia. Five that will be added in the next few years are Arkansas, Ohio, Tennessee, Utah and Wyoming.

Right now, buyers are expected to pay sales taxes on Internet purchases themselves directly to the state when they pay their income taxes. But it's not widely enforced, and states say it costs them upwards of $15 billion a year in lost revenues, collectively.

"Taxes that it was difficult to collect before will now be collected. And consumers will pay that," said David Quam at the National Governors Association, helping lead the five-year effort that brought together state revenue officials, legislators and business leaders.

The question of taxing Internet sales has been in limbo since the dawn of the computer era, when the only issue was catalog sales across state lines.

A 1992 U.S. Supreme Court ruling forbids states from forcing a business to collect their sales taxes unless the company has a physical presence in the affected state.

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