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Ohio tax officials hope new voluntary system will collect on-line sales taxes

With each passing holiday shopping season, more people choose to shop on-line. Forrester Research predicts holiday on-line sales will top $18 billion - that's a 25% increase over last year.

Those figures have tax officials in Ohio and other states seeing red because for the most part, the sales taxes that should be paid for on-line purchases go uncollected.

This holiday season, a new effort is underway to try to get more on-line retailers to collect sales taxes.

The Ohio Department of Taxation's Gary Gudmundson explains the letter of the law.

The internet is not a tax free zone. If people buy an item on the internet and pay no tax on it that does not mean they don't owe tax; they do owe tax, he said.

That's the law. The reality is, much of the internet is a tax free zone. And state and local governments are losing hundreds of millions of dollars in uncollected sales taxes because many on-line retailers do not collect sales taxes. Ohio officials estimate state and local governments lose some 600 million dollars a year in uncollected internet sales taxes.

Storefront retailers complain that on-line retailers steal business because internet buyers don't have to pay the sales tax paid at a traditional cash register. Craig Shearman speaks for the National Retail Federation.

This is really about fairness. On-line retailers have an unfair advantage, Shearman said.

The US Supreme Court has ruled states cannot force a retailer to collect sales taxes from states where the retailer does not have a physical presence. The Supreme Court says Congress can force internet sales tax collections but Congress has not done so.

The problem is, it's complicated. Every state with a sales tax does it differently. They have different rates. In some states, like Ohio, the state and counties collect sales taxes at different rates. Some states tax food; some don't. A few states don't have a sales tax.

18 states have tried to make it less complicated. They've joined the Streamlined Sales Tax effort. They've changed their laws so their sales tax laws are more uniform. And starting in October, some retailers voluntarily began collecting sales taxes on products sold to people who live in those states. Ohio is not a full fledged member yet, but will become one in two years.

The National Conference of State Legislatures leads the Streamlined Sales Tax project. It's president, Illinois State Senator Steve Rauschenberger says the project aims to modernize the sales tax system and create fairness for retailers.

Those traditional merchants who pay property taxes and support little league should not be at a disadvantage because state lawmakers cannot modernize.

Rauschenberger says he could not estimate how much sales tax the Streamlined System will generate. It's voluntary. On-line retailers do not have to collect sales taxes, but if they do, states will help cover the cost and protect them from some accounting mistakes liability.

Ohio Department of Taxation attorney Bill Riesenberger says they hope some retailers will step up.

The hope was the system will encourage some participation even without federal legislation.

While saying the problem won't be solved until congress forces collections, traditional retailers say the streamlined project is a step in the right direction.

The Ohio Council of Retail Merchants supports the idea even though some small retailers have balked at the cost of adapting to sales tax law changes. The group's Lora Miller says such costs are an investment in the state and the industry.

If the state can collect that money there is less of a burden on the taxpayer and there is a level playing field, she said.

That playing field may not be that uneven. A Jupiter Research survey found only 9 percent of consumers would buy less or stop buying from an on-line retailer that charged sales taxes.

In the meantime, here in Ohio, taxpayers are supposed to pay the sales taxes themselves. There is a line item on the state income tax return. On average only 50 thousand of the state's 5.3 million filers fill in that box and pay internet sales tax on purchases they've made.