[permafrost]

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Tax law would have to be rewritten to make it fair or even worth regulating, otherwise regulation might just kill the industry itself.

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How so? Losses are deductible at the federal level, as was explained. If your state doesn't do this, I guess you'll have to work for change at that level. Besides, these taxes are owed under the current system....the only thing regulation will change is reporting by sites.

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From Barney's bill:
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Licensee...requirements with respect to any Internet bet or wager...all taxes relating to Internet gambling due to Federal and State governments...are collected at the time of any payment of any proceeds of Internet gambling

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After they collect taxes, sites will report; collecting and reporting will change.