Current law and court rulings require out-of-state retailers who have a store or other physical presence in Indiana to collect the 7 percent sales tax, but most big Internet sellers have no presence and can't be forced to pay, 6News' Norman Cox reported.

Buyers are supposed to add up all that unpaid tax and submit it themselves with their income tax returns, but most don't, statistics show.

State revenue department officials said collections are improving, up from $6 million three years ago to $23 million so far this year, because some out-of-state merchants are starting to collect the tax voluntarily, state officials said.

But researchers, like Butler University marketing professor Daniel McQuiston, said that amount is just a pittance of what the state is actually owed.

McQuiston estimated that Indiana loses $120 million in unpaid sales taxes during the holiday season alone.

"I think it would be almost impossible to do it voluntarily," McQuiston said. "No. 1, why should people pay 7 percent more in Indiana if they don't have to? And, second, they're just not used to doing it."

Senate Appropriations Committee Chairman Luke Kenley said the yearly loss runs from $150 million to $300 million, enough to fully fund Indiana's schools.

But the people who are the angriest are Indiana's in-state merchants.

"Here you have retailers who operate stores across the state of Indiana, make a significant investment in those stores, employ Hoosiers, contribute to the community, and they're put at a 7 percent disadvantage," said Indiana Retail Council President Grant Monahan.

The federal government could force all retailers to pay state sales taxes, and there is a bill before Congress to do that, but few expect it to pass soon.

Meanwhile, the revenue department is stepping up efforts to get Hoosiers to pay the tax. On next year's income tax form, the line asking Hoosiers to report unpaid sales taxes on out-of-state purchases, which used to be down near the bottom, has been moved to the first page.