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Following suit with the New York State’s local tax legislation on Internet sales taxation, states across the country are taking another hard look at taxing interstate sales completed on the web. Faced with crushing deficits, depressed tax revenues, and a gray outlook for 2009, most of these states are looking to tap on a variety of indirect Internet tax legislation to raise the local government revenue.

These indirect Internet taxes are aimed to compensate for the lost sales taxes and to generate additional revenue for the ailing local government coffers. There are now 22 states and hundreds of retailers who have joined a group called the Streamlined Sales Tax Governing Board. The goal of the group is to simplify the methods by which sales taxes are calculated, collected, and transmitted online by creating a set of tax rules that rolls the thousands of state, county, and city tax codes into a single, simplified code. But that does not stop there. SSTGB also wants to make those rules apply to all online purchasers, even those across state lines, not just buyers in the same state as the seller's offices. The SSTGB already has some of the biggest retailers funding their initiative, including Wal-Mart, Borders, and J.C. Penney.

Many businesses with online interests are trying to put up a fight over this tax initiative. Amazon is suing the state of New York for its requirement that the company collect sales taxes for all sales to New York, despite the fact that Amazon doesn't have a physical presence there. It is collecting those taxes, though, in the meantime, as the case works its way to court.

Other companies, however, decided not to collect those taxes and instead fired its New York-based affiliates in order to skirt the NY legislation. Now, New York-based affiliates are barred from several affiliate programs or are required to send special waivers or sort to counter the tax resolution. The recently-enacted law claims that locally-based "affiliates," which collect a commission on referrals for sales of products sent on to a third-party retailer, constitute a physical nexus in the state and thus make the retailer responsible for tax collection. Overstock, which has to fire thousands of New York affiliates, is also suing New York over the law.

Computer Technology Industry Association (CompTIA), the forerunner in the 1998 effort to that enacted the Internet Tax Freedom Act (which placed a three-year moratorium on new discriminatory Internet taxes) is also pushing for the Streamline Sales Tax System but supports a tax-free internet at the international level.

Everyone is joining in the fray. And with a cash-strapped US government, general perception seem to favor to new Internet sales tax legislation for the 21st century. We just have to see what happens as the parties tussle in an exhausting legal battle.

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