States are desperate for tax revenue--so desperate that they may finally find a way to extract sales tax from Internet vendors. The prospect is bad news for Amazon, Ebay and others that for the most part have avoided having to collect from their out-of-state customers.  Two things are getting in the way of taxes on e-tailing. One is a lack of enthusiasm in Congress for the proposed enabling legislation that would allow states to go after the mail-order industry. Why be branded a tax hiker when the revenue won't ameliorate the federal government's budget problems? The other is that interstate sales taxing probably can't work without a lot more uniformity from state to state in what gets taxed. State legislators would have to give up their pet causes--New York's sales tax exemption on clothes costing less than $110, for example, or New Jersey's sumptuary tax on furs.  But desperate times call for such desperate measures as tax simplification. Without more tax hikes or budget cuts, New York will run a $6.8 billion budget deficit in the fiscal year ending in 2011, reports the Center on Budget & Policy Priorities; California will be short $14.4 billion.  Fans of the federal legislation claim that, without action, the states will be out $23 billion in sales tax in 2012. The bill's main proponents are Senator Mike Enzi (R--Wyo.) and Representative Bill Delahunt (D--Mass.). It would end-run a 1992 Supreme Court ruling holding that it's an unconstitutional intrusion on interstate commerce to force mail vendors to cope with state-by-state and city-by-city variations on what's taxable and at what rates. The bill calls for harmonization via something known as the Streamlined Sales & Use Tax Agreement.  So far 23 states have laws passed or pending to "streamline," meaning they've reduced the number of tax exemptions and standardized rates and definitions of taxable items under the auspices of the agreement. Among the holdouts: New York and California, along with Texas, Florida, Ohio and Illinois. It's not just a matter of simplifying multiple tax codes among municipalities for such services as haircutting and gym memberships. Under the Enzi-Delahunt bill, New York City would have to change some of its most cherished and protected means of gouging consumers. It would have to give up additional taxes on area-code-900 sports scores and sex chat numbers and higher rates on parking in Manhattan. The sales tax exemptions on interior decorating would also have to go. So would the one on cheap clothing. California would have to surrender popular partial tax exemptions on farm equipment, diesel fuel for agricultural use and racehorse breeding stock.  In a recent scuffle New Jersey wanted to create a new sales tax for fur coats, even though the harmonized system allows only a single category for clothing. The governing board overseeing the agreement relented, showing that streamlining is "a slogan, not a standard," says William McClellan, a lobbyist for the Electronic Retailing Association, which opposes Enzi-Delahunt.  Absent uniformity and that federal law, states are cooking up other schemes to get revenue from Internet vendors. The constitutional prohibition on going after out-of-state vendors does not apply to vendors that have a physical presence in the taxing state. Last year New York passed a law decreeing that affiliates of retailers like Amazon constitute a physical presence. Both Amazon and Overstock.com ( OSTK - news - people ) are challenging the law, which is currently before the New York State Court of Appeals; Overstock also pulled agreements with affiliates situated in New York. Amazon used that same tactic to counter a similar North Carolina law. In California Governor Arnold Schwarzenegger vetoed a bill to go after mail-order retailers with California affiliates.  A study from Donald Bruce, William Fox and LeAnn Luna at the University of Tennessee found that e-commerce sales could grow from $2.4 trillion in 2006 to $4 trillion by 2012. When you add in mail-order catalogs and other businesses that don't collect the tax, California by then will be missing out on $4.2 billion a year in lost revenue and New York $1.8 billion.  Special Offer: Free Trial Issue of Forbes
States would have a better chance of collecting sales tax from mail orders and online shopping if they simplified their tax laws.