SACRAMENTO, CALIF. With his state staring at a budget deficit that could hit $35 billion, California Gov. Gray Davis is rethinking his longstanding objection to imposing sales taxes on Internet commerce -- a move that could ignite similar steps around the nation.
With states around the country facing a collective $50 billion budget gap this year and $70 billion next year, lawmakers increasingly are eyeing online revenues to plug their shortfalls.
Last year, Internet sales ballooned to $79 billion, or about 3 percent of all retail sales, according to Forrester Research.
California alone may be losing $1.7 billion this year by not taking a deeper cut of Internet sales, which is why two bills to tax Internet sales have been filed in the Legislature.
If either were to pass, the movement to tax Internet sales would gain serious clout, said Utah Tax Commissioner R. Bruce Johnson, a leader of the push.
"It's difficult to overstate the importance of California's participation in this project," he said.
Kansas Gov. Kathleen Sebelius already is interested in taxing sales made on the Internet, said Nicole Corcoran-Basso, spokeswoman for the governor.
"She thinks it would be a great move to get an Internet sales tax in place," Corcoran-Basso said. "She thinks it would help level the playing field."
Corcoran-Basso said there's been no recent estimate of how much the state may be losing in tax revenues through Internet sales, but previous estimates have pegged the amount at $50 million a year.
A U.S. Supreme Court decision says states cannot force businesses to collect their sales taxes unless the company has a physical presence in that state.
While California stores with online sites faithfully collect sales taxes for the state, most online sellers such as Seattle-based Amazon.com say it's impossible to collect sales taxes for an estimated 7,500 taxing districts nationally.
But 34 states and the District of Columbia are trying to come up with a simple standard from a hodgepodge of sales tax definitions to persuade Congress to lift a national moratorium against Internet sales taxes. Also, major retailers have agreed on a way to collect Internet sales taxes in 37 states.
So far, California and other states with high-tech and investment sectors -- including New York, Colorado, Massachusetts and Georgia -- have largely watched from the sidelines.
New York Gov. George Pataki, a Republican, remains opposed to taxing Internet shopping. But Massachusetts Gov. Mitt Romney, also a Republican, has expressed a willingness to examine the issue. The Legislature sent Romney a bill Tuesday that would make Massachusetts join the states working on the issue nationally.
It's unclear whether other online commerce sites, like auction house eBay, could be included in sales taxes. EBay spokesman Kevin Pursglove notes that some sellers on the site already collect sales tax and says the company is closely monitoring the developments.