BY JENNIFER WEINGART
Law makers are finding that the honor system isn't all it's cracked up to be, at least when it comes to people paying sales tax on items they purchase on the internet.
Now both federal and Michigan state government are searching for alternative ways to collect the lost revenue.
Jennifer Weingart takes a look at what new proposals may mean for consumers and for Michigan's economy.
Officials say requiring taxpayers to self-report is costing Michigan an estimated 450 million dollars a year, and that number is rising
"The Michigan Department of Treasury estimates that about 491 million dollars of lost revenue will occur in fiscal year 2014." Hallan said.
That was Bill Hallan, with the Michigan Retailers Association.
The 1992 US Supreme Court ruling on Quill v. North Dakota said that a state cannot charge sales tax unless a retailer has a physical presence in the state.
The two bills in the state legislature would re-define what constitutes a 'Physical Presence'.
"Do they have a network of affiliates in Michigan, do they have a subsidiary in Michigan, or a warehouse or a distribution center, if they meet any of those tests then they have a sufficient connection, or nexus if you will, with Michigan where they should be required to collect like any other brick and mortar that's already doing so." Hallan said.
Politicians from both parties support the internet bills, and Michigan isn't the only state with laws like these in the works.
Republican Representative Peter Pettalia from Presque Isle said he co-sponsored the legislation for two reasons
"Number one, it's not a new tax and the dollars that should be collected would help us with the short-falls that we have right now in bringing money back to our schools, local government, police and fires, and the likes. The other is it makes it fair for all businesses, whether you're a brick and mortar business or an internet business in the state of Michigan it makes the playing field level." Pettalia said.
Democrat Stacy Erwin Oakes from Saginaw is also a co-sponsor. She said that state action is not enough.
"Until the federal government passes some legislation there may be some other loopholes to prevent that. This legislation at least starts the conversation and makes sure people understand that we are trying to tie up into other sources to raise revenue other than the backs of the working poor." Oakes said.
The federal law would mandate that all retailers making more than one million dollars a year on remote sales collect the sales tax for each tax jurisdiction they sell to.
Tricia Kinley with the Michigan Chamber of Commerce says the Senate version would be enforceable across state lines but she also acknowledges potential challenges to it that could be raised in the U.S. House.
"The ideal approach would be that congress acts on this but knowing that congress might not there's certainly an interest across the country that states take matters into their own hands" Kinley said.
The bills in Lansing and in Washington have been nicknamed "Main Street Fairness" and "Marketplace Fairness" but just how fair are they?
Brick and mortar businesses located in Michigan charge sales tax on every taxable sale but those sales are made in the same place every time.
If the federal bill becomes law, an internet retailer would have to keep track of all the sales they make and charge sales tax accordingly.
That means an online business would have to count tax for forty-five different states that charge sales tax as well as the nearly seven thousand local tax jurisdictions across the country, something traditional brick and mortars don't have to worry about.
Opponents to the state law say if it passes, Michigan would be at a competitive disadvantage.
The state would charge tax on businesses that are physically present in Michigan, but states without an internet sales tax would not.
Ted O'Neil with The Mackinac Center for Public Policy says this would be detrimental to Michigan's economy.
"With e-commerce it might mean fewer internet type companies are willing to locate in Michigan, or build a warehouse or whatever, which could, in turn mean fewer jobs." O'Neil said.
Americans for Prosperity of Michigan is another organization that opposes the bill as written. It proposes that the bill be paired with another measure that would reduce income taxes, and as a result make the bills revenue neutral.
Scott Hagerstrom is the state director of Americans for Prosperity.
"Politicians are looking for more revenue, and this is the reason they're pushing these bills, is for more revenue they're putting it under the guise of fairness and we don't need to be increasing the tax burden on working class people in this country and we don't need to be increasing the burden on small businesses and this will only result in job losses." Hagerstrom said.
The two bills in Lansing are under consideration on the house side.
The federal bill passed the Senate by a vote of 69 to 27, but has not yet been picked up by the House.
None of the people we talked to for this story would venture a guess as to the likelihood of any of these bills becoming law.