An increasingly thorny debate being waged among state legislatures and internet-based retailers could have huge implications for schools, as the sinking economy threatens to undermine education programs.

With the recession pummeling states' budgets, many state lawmakers want to fill the gaps by collecting taxes on internet sales, which continue to grow even as the economy shudders. And such proposals are sparking conflicts with companies that do business only online and have enjoyed being able to offer sales-tax-free shopping.

One of the most aggressive states, New York, is being sued by Inc. over a new requirement that online companies must collect taxes on


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