Laffer Endorses Internet Sales Tax

Art Laffer, Chairman of Laffer Associates, cast his vote in favor of legislation for an online sales tax that could come before the Senate as early as next week.

The bipartisan Marketplace Fairness Act would grant states the authority to collect sales taxes at the time of transaction of online purchases.

(Read More: CEO: Internet Sales Tax Needs to Be Fair)

"This Internet stuff that's tax-free, it's just not fair competition" he said on CNBC's "The Kudlow Report." "We should have a level playing feel and keep all tax revenue statically revenue neutral."

Laffer, a former economic adviser to President Ronald Reagan, said under the Marketplace Fairness Act, individual states could cut their income-tax rates by instead collecting online sales taxes legally due by consumers.

"It's just like the income tax," he said. "You have a flat tax, all income at one rate and that's exactly what you should do with sales in the states."

He said the legislation broadens a state's sales tax base by treating Internet retailers similarly to in-state retailers. A study by the National Conference of State Legislatures estimated states lost $23.3 billion in revenues in 2012 from being prohibited from collecting sales taxes from online and catalog purchases.

(Read More: Florida bill seeks sales tax on online purchases)

"Outsiders shouldn't get an advantage over insiders," he added.

But the bill's opponents have said it is yet another attempt to impose tax burdens on taxpayers and business.

"I think we need to rename this legislative proposal for what it is, because what it is the Internet Tax Collection Act," Sen. Kelly Ayotte, R-N.H., said on the Senate floor in March. "For those who believe that this is some kind of conservative bill, this isn't my idea of conservative. This is about forcing businesses and states like mine with no sales tax to become the tax collectors for the nation."

—By CNBC Associate Producer Elizabeth Schulze. Follow her on Twitter @eschulze9.