State lawmakers are looking to collect an estimated $100 million or more in unpaid taxes on Internet purchases by Hawai'i residents each year.

State officials are concerned that they are missing out on a growing source of revenue as people increasingly shop online. Hawai'i residents already are required to pay a 4 percent use tax on out-of-state goods purchased via the Internet or catalogs, though many residents do not know about the tax rule or comply with it.

Last week a House committee pushed ahead Senate Bill 2222 which would urge businesses in participating states to collect taxes from Hawai'i Internet shoppers. Hawai'i businesses that sell goods online in turn would collect taxes from out-of-state buyers.

So far 13 states have come together under what's called the Streamlined Sales Tax effort. Senate Bill 2222 would substantially alter Hawai'i's complex general excise tax to make it more similar to taxes in other cooperating states.

But collecting taxes on Internet transactions is a complicated proposition and the cooperative effort among states is not going smoothly, said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i.

The goal is to reconcile an array of tax codes in different states, which, for example, might tax large marshmallows as food and small marshmallows as a snack in one area, while both could be taxed the same in another area. Such complexities are a prime reason Internet sellers now aren't required to conform to each state's tax code.

Despite years of effort, some states still disagree on one key point — who gets to keep the tax. Under Senate Bill 2222, a Hawai'i resident purchasing and receiving an item from Utah would pay Hawai'i's tax rate of 4 percent on the purchase. The Utah business would collect and remit that tax to the state of Hawai'i.

However, some large manufacturing states, such as California, are pushing for taxes to be collected in the state where the product is sold. That would mean a Hawai'i shopper who buys something online from California would pay the California sales tax, a minimum of 7.25 percent, and the company would remit the tax to the state of California.

Hawai'i should wait until such issues are resolved before joining the streamlined sales tax effort, Kalapa said.

"They haven't found common ground," Kalapa said. "That's why I think we shouldn't spend our resources when the advocates can't even come to an agreement."

State tax officials have no position on the bill. Department of Taxation Director Kurt Kawafuchi said the department needs to conduct more research on the topic including determining the cost of implementing the bill.

The bill was introduced by Sens. Carol Fukunaga and Brian Taniguchi.

Just how much tax revenue the state loses by not collecting taxes on electronic commerce is unclear.

One estimate, by the University of Tennessee Center for Business and Economic Research, said Hawai'i could add $112.6 million a year to its tax revenue if it collected tax on online purchases.

Still, support in the House for the Senate bill appears questionable. The House Economic Development and Business Concerns Committee passed the bill by a vote of 8 to 1. However, all eight affirmative votes were lodged with reservations. The bill now goes to the Consumer Protection and Commerce and Judiciary committees.

Rep. Jon Riki Karamatsu, chairman of the House Economic Development and Business Concerns Committee, said he sees value in continuing discussions on the bill. However, he said now is not the time to join the streamlined sales tax project because there's too much uncertainty about how it will work, who will participate and what it will cost.

"The Senate really wants it so we're just trying to further the discussion," Karamatsu said.

Currently catalog companies and pure online retailers are required to charge sales taxes only in states where they have operations, such as warehouses and distribution facilities. That means most Internet shops do not collect Hawai'i state taxes. That places local retailers at a competitive disadvantage. Among the supporters of the bill are the Retail Merchants of Hawaii and the Hawaii Government Employees Association. The National Federation of Independent Business Hawai'i chapter urged further study on the matter.

Even for participating states, compliance among businesses would be voluntary at least initially. If the effort gains enough momentum Congress eventually could make compliance mandatory.

Among the local businesses that likely would be affected by the law is Hilo Hattie, which has a growing Internet business, said Paul deVille, president and CEO of Hilo Hattie parent Pomare Ltd.

"We would certainly oppose this from the standpoint of yet another burden in an already difficult business environment," he said. "I'm just not eager at all to add more costs to our operation."

Reach Sean Hao at shao@honoluluadvertiser.com.