Two Senate bills that propose mandatory collection of internet sales tax will likely be combined into one that would provide exemptions to small retailers, writes InternetRetailer, quoting John Logan, senior state tax analyst at CCH Inc. "As we get further into 2006, some of the unsettled issues will get settled, making passage…more favorable," Logan says. Two versions of an internet sales tax bills were submitted last month and would provide federal backing to the Streamlined Sales and Use Tax Agreement (SST or SSUTA).

Already,19 states have agreed to simplify the collection of sales tax for internet and catalog sales across state borders via the SST. Without a federal law, however, the SST would remain a voluntary program.

One of the main issues is whether small businesses should be exempt from an internet sales tax. Large e-tailers have expressed concern that a high exemption could let thousands of small retailers, including sellers on eBay.com, gain an unfair advantage.