(Reuters) - A proposal to allow states to collect online sales taxes will be reintroduced in the Senate on Thursday, with support for the measure growing among Republican and Democratic governors and state legislators.

On the heels of President Barack Obama once again tagging a U.S. tax code overhaul as a top priority in his State of the Union speech, Senator Richard Durbin said he will offer a bill that could resolve the long-unsettled online sales tax issue.

The Marketplace Fairness Act will be introduced by Durbin, an Illinois Democrat, and two Republican counterparts, Senators Mike Enzi of Wyoming and Lamar Alexander of Tennessee.

National and local brick-and-mortar retailers already collect sales tax on online transactions due to their physical stores. They have long argued that a law was needed to level the playing field by allowing states to force online-only merchants like Amazon.com to collect sales tax, as well.

The Durbin bill was expected to exempt from sales tax collection any merchant with $1 million in annual sales or less. That would be an increase from a prior cap of $500,000. This change would bring the Senate bill in line with previous versions in the House of Representatives.

(Reporting by Nanette Byrnes; Editing by Kevin Drawbaugh; Editing by Martin Golan)