California is inching closer to joining about half a dozen U.S. states in imposing new measures that would require online retailers to collect internet sales tax.

A new bill, introduced this past January by California State Assemblyman Charles Caldron, passed through the Assembly yesterday and will now head to the State Senate for review. The bill will require online businesses like that have a physical presence in the state to collect sales tax from consumers in the state that purchase products through its website.

According to a December 2010 analysis conducted by the state’s Board of Equalization, about $1.145 billion goes unpaid annually in uncollected online sales tax, with $795 million uncollected by California consumers and the rest uncollected from the state’s businesses. Meanwhile, average California household owes between $61 to $102 per year for each online business.

Legally, states don’t have the constitutional authority to force online retailers without any physical presence in their state to collect sales tax, though the Main Street Fairness Act proposed by Senator Dick Durbin (D-Il.) in April would change that if passed by Congress. Brick and mortar retailers such as Wal-mart Store Inc. and Barnes & Noble Inc. have argued that allowing online retailers to slide on collecting sales tax gives companies like an unfair advantage.

A May 18 poll showed that 61.11% of consumers shop with in order to avoid paying online sales taxes. Another 27.78% said their state already requires online retailers to collect sales tax, while the remaining 11.11% said they pay online sales tax even though their state doesn’t require online retailers to collect the taxes.

More recently, Texas governor Rick Perry vetoed legislation that would have clarified which online retailers would be required to pay online sales taxes.

Read more: Shopping with Could Make You More Susceptible to an Audit

Learn: Texas Says ‘No’ To Internet Sales Tax

Just five states to date have enacted legislation requiring online retailers like Amazon to charge their customers online sales tax: Connecticut, Illinois, New York, North Carolina and Rhode Island, according to the Tax Foundation. The organization, which opposes “Amazon” taxes like the one more recently being proposed in Louisiana, has proposed conditions such as exempting in state online sales by brick-and-mortar retailers from collecting state sales tax.

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  • Anonymous

    Expecting legislation to end the sales tax inequity has been a sad tease for many years and all the waiting for matters to change only guarantees hollowing out of main street retail and before long Best Buy will follow Cicuit City to Big Box heaven.

    All the valiant efforts to plug the pernicious inequity of the online sales tax loophole at the state level have either failed at the legislative level or have been rendered impotent by aggressive counter measures adopted by Amazon like cancelling affiliates etc.

    Although the federal Main Street Fairness Act of Sen.Durbin/ Sen.Enzi might appear to be the answer, I am not sanguine about its prospects and it will likely die silently like Rep. Delahunt’s efforts in the last congress. And I don’t think there will be any support from Obama who will not wish to alienate his silicon valley supporters like eBay & Google who oppose this legislation.

    Therefore, the B&M retailers seeking to end the online sales tax loophole should re-think their tactics & strategy.

    One way is to push for abolition of sales taxes for all items which are online buyable like electronics, books, appliances, shoes, clothes, diapers, etc. (food/groceries & prescription meds are exempt in most states). This should garner popular support and resonate with the anti-tax sentiment of the tea party crowd.

    Additionally, big box brick & mortar should spin-off their online operations and headquarter them in no-tax states and derive revenues from brand licensing, logistic services like warehousing, pickup & returns and other legal arms-length nexus-isolated arrangements where both B&M and its independent online avatar can synergestically benefit. An example would be, Barnes & Noble, there is no reason for its Big Box bookstores and Nook/eBook operations be one entity. B&M Barnes&Noble can continue as a physical bookseller while deriving revenues from an independent online Barne&Noble thru brand licensing fees etc.

    Only when states face the clear & present reality of vanishing revenues will this issue garner any urgency.