Arizona's expected to gain up to $708 million by 2012 by taxing more

Arizona could gain as much as $708 million in 2012 by taxing more Internet, Home Shopping Network, catalog and other out-of-state sales, according to the National Conference of State Legislatures. 

The catch: It would have to greatly simplify its sales-tax structure, with changes approved by state and federal lawmakers.

The gain: That much additional revenue would go a long way toward helping Arizona tackle its deficit, which is estimated to range this year from $368 million to $1.3 billion, and could enable the state to reinstate services and planned projects.

It also would help "brick-and-mortar" retailers that invest in Arizona and provide jobs but have to charge sales taxes, putting them at a disadvantage against "remote" or out-of-state retailers that don't.

Just about every state is salivating at the prospects of taxing more of these sellers, especially in rapidly growing Internet sales.

"Some of the things that have gone on in this recession would not have happened if sales taxes had not gone uncollected," said Scott Peterson, executive director of Streamlined Sales Tax Governing Board, a Nashville-based group that oversees a growing simplified sales-tax program adopted by 24 states. "It's becoming a lot of money."

Increased sales taxation could find more political interest in Washington with states desperate for cash and sales-tax enforcement cast as a way to steer money to them without adding to the federal deficit, said Donald Bruce, an economics professor at the University of Tennessee.

He estimated that states could have gained as much as $8.6 billion this year if they could have collected more Internet taxes. A proposed congressional law to help states collect this money was introduced July 1.

E-commerce, meanwhile, just keeps growing, offering a tempting pot of revenue for financially strapped states to tax. Almost two dozen states levy sales taxes on e-books, apps and ringtones and music downloads, according to CNETNews.com.

Although the economy in general had a rough year in 2009, U.S. online retail grew 11 percent to $155 billion, according to Forrester Research Inc. The Cambridge, Mass.-based research company predicts another 11 percent growth this year.

About 154 million individuals bought online last year, mostly buying products in three categories: apparel, footwear and accessories; consumer electronics; and computer hardware, software and peripherals, according to Forrester.

But the issue is controversial. Changing tax structures needs approval from Congress and the Arizona Legislature, and both have balked before.

Internet taxes are opposed by major online retailers such as Amazon and eBay, which argue it is too cumbersome to figure out sales taxes for an estimated 7,000 jurisdictions across the country that charge different tax rates and sometimes have different definitions of what is to be taxed.

"It's difficult and costly for an out-of-state retailer to know all the laws in every state," said Neal Osten, director of the Washington, D.C., office of the National Conference of State Legislatures, which nevertheless favors increased Internet taxation to help states.