Democrats’ proposed federal bill to collect state sales tax from online retailers is being met with criticism by some organization that say the law would place an unnecessary financial burden on small businesses.

But lawmakers say the bill would allow local Main Street retailers to compete more effectively against out-of-state Internet sellers. During its second quarter earnings call last week, online retail giant Amazon praised the legislation, which has failed pass in Congress a number of times.

 “I think in terms of the sales tax issue in total, the way you should think about it, we support a federal simplified approach, as we have for more than 10 years,” Thomas J. Szkutak, the company’s chief financial officer, told analysts during the company’s second-quarter earnings call, PC Mag reported.

The Main Street Fairness Act – proposed late last week in the Senate and the House – is co-sponsored by co-sponsored by Sen. Dick Durbin (D-IL), Sen. Tim Johnson (D-SD), and Sen. Jack Reed (D-RI) as well as Reps. John Conyers (D-MI), Peter Welch (D-VT) and Heath Schuler (D-NC) in the House.

Mounting state budget deficits are leading elected officials to search for new revenue sources and the growth in online retailing make it a particularly lucrative target.

In a statement issued July 29, Durbin said US states will lose an estimated $24 billion in 2012 because of uncollected sales taxes from Internet and catalog sales.

“The Main Street Fairness Act doesn’t ask anyone to pay a single penny more in taxes,” he said. “Instead, it would help governors and mayors collect taxes that are already owed.”

In a letter to Durbin, Amazon.com (News - Alert), Inc.’s Vice President for Global Public Policy Paul Misener said: “Amazon.com has long supported a simple, nationwide system of state and local sales tax collection, evenhandedly applied to all sellers, no matter their business model, location, or level of remote sales.  To this end, I am writing to thank you for your bill that would allow states that sufficiently simplify their rules to require collection of sales tax by out-of-state sellers.”

According to Durbin, the legislation would:

• Certify the Streamlined Sales and Use Tax Agreement;
• Provide states who choose to use it with the clear authority to require retailers to collect sales taxes already owed;
• Require the Streamlines Sales and Use Tax Agreement to meet a lengthy list of simplification requirements to ease administrative burdens for sellers;
• Exempt small businesses (as defined by the Governing Board of the Agreement) from collecting sales taxes;
• Compensate retailers for startup administrative costs associated with collecting sales taxes;
• Treat all retailers equally regarding sales tax collection;
• Release consumers from their existing sales tax remittance obligations; and
• Help states and localities collect billions in taxes that are already owed.

Groups opposing the bill, among others, are: Computer and Communications Industry Association, the Information Technology Industry Council (ITI), and NetCoalition, a trade group counting Google (News - Alert) and Yahoo among its members, PC World reported.