With billions of state and local tax dollars going un-collected each year because a number of online retailers either aren’t required to collect the taxes or are shirking their responsibilities, a proposal circulating around Congress takes a new “simplified” (but really kind of complex) approach to get more e-tailers collecting sales tax.

Before we get into the specifics of this legislations, let’s get this out of the way right here: If your state has a sales tax on an item, it doesn’t matter whether you purchase that product from the corner store or from a website based in Fiji, you are supposed to pay that tax. We’ve just become so used to the stores collecting it that when an online retailer doesn’t, we often treat it like tax-free shopping.

The current precedent that guides the online retail tax issue goes back to the 1992 Supreme Court ruling in Quill v. North Dakota. That case set the standard that remote sellers (online businesses, mail-order companies) must have a physical presence in a particular state in order for the state to compel the collection of sales tax.

When Amazon began opening up more warehouses around the country, states threatened legal action, claiming that these constituted places of business under the Quill standard. Likewise, some states argued that Amazon’s marketplace business, wherein third parties sell their wares through the website, also satisfied the physical connection requirement. Amazon now collects taxes in a number of states, but not everywhere and no federal law exists to give states the authority to mandate the collection of sales tax.

Several attempts have been made to give states the authority to require that online retailers collect appropriate taxes from shoppers. The closest one has come to reality was a bill passed by the Senate in 2013; it’s been collecting dust in the House ever since.

So What Now?

While no new bill has been introduced at this time, Rep. Bob Goodlatte of Virginia — Chair of the House Judiciary Committee — has been circulating a draft of what’s dubbed the “Online Sales Simplification Act.”

It completely does away with the existing Quill framework of requiring a physical presence to compel the collection of taxes.

Instead, it sets up a system whereby the retailer’s “origin state” (i.e., the state in which it has the biggest presence) collects the tax, but at a rate set by the state where the customer resides. The tax is then paid out to the customer’s state through a new “tax clearinghouse.” Only states that elect to be part of this clearinghouse could participate.

Clearinghouse states would each establish their own state-wide rate for remote purchases. That removes some of the burden for companies who complained about having to know the applicable taxes and rates for each municipality.

According to those familiar with the legislation, one of the reasons for the creation of the clearinghouse model is to work around some of the constitutional concerns of other efforts to compel sales tax collection.

For example, a recently passed Alabama regulation disregards the Quill physical location standard and instead taxes remote retailers based on revenue or sales volume. That regulation is currently being challenged by online tech retailer NewEgg. A similar tax law in South Dakota is being challenged by online and mail-order industry trade groups.

Opponents of those two states’ new rules argue that allowing a state to collect taxes on a business located in another state is a violation of the Commerce Clause.

The draft being circulated by Goodlatte attempts to avoid that concern by having the company’s home state collecting the taxes. As one Congressional aide put it, “No Regulation without Representation.”

The current draft is filled with bracketed sections where legislators hope to resolve issues involving things like taxes on clothing and how to address the handful of states that don’t collect sales tax.

Retail industry groups, which have long pushed for the currently stalled bill that would simply allow states to compel the collection of taxes on remote sales, seem cautiously not-pessimistic about the discussion draft.

“Retailers are pleased that the process is advancing and we look forward to an open debate in the House aimed at ensuring that all retailers can compete on a level playing field,” said Joe Rinzel, senior vice president for government affairs at the Retail Industry Leaders Association. “While retailers welcome today’s action by the Chairman to move the process forward, we will continue to press for changes that achieve true parity at the point of sale.”

Similarly, David French, Sr. VP for Government Relations at the National Retail Federation, says he hopes the release of the draft “will bring the attention needed to get Congress to move forward in treating purchases made online the same as those made in local stores when it comes to sales tax collection.”

With so little time left for Congress to consider new legislation (and so many people on Capitol Hill focused on the November elections), the question is whether this bill will see the light of day this year, or if this can will be kicked down the road for the next legislative session.

[h/t WSJ]

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.