Opposition to Internet Sales Tax Bill Grows as Vote Looms

In a move staunchly opposed by companies and people who do business over the Internet, the Senate this week is expected to pass a bill greatly expanding the ability of states to collect sales taxes on online purchases.

The Senate on Monday voted 74-20 to begin debating the bill. With that level of support, the measure could pass quickly.

Under current law, states can collect sales taxes from retailers only if they have a physical presence in the state — a store, warehouse or office.

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People who order items over the Internet from another state are supposed to declare the purchases on their tax forms, but few do.

The new bill, the Marketplace Fairness Act, would allow states to collect taxes even if the retailer does not have a physical presence in the state, although it exempts small businesses that earn less than $1 million a year from out-of-state sales, The Hill reports.

Supporters of the legislation say it would close a loophole that benefits online retailers over brick-and-mortar stores, which must collect sales taxes in most states.

The National Retail Federation, which supports the bill, estimates that states lose $24 billion a year in sales taxes not collected by online retailers, according to The Wall Street Journal.

“The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses,” Sen. Dick Durbin, D-Ill., a sponsor of the bill, said in a statement, adding that he is confident the bill will pass in the Senate.

But Sen. Max Baucus, D-Mont., chairman of the Finance Committee, is among those who oppose the bill. He believes it would violate the rights of states that have no sales tax, like Montana.

“This is a clear infringement on states’ rights that we cannot stand for,” he said.

EBay on Sunday said it sent tens of millions of emails asking its American sellers to urge changes to the bill, including a template for users to send to members of Congress seeking the changes, The Journal reported.

“The legislation treats you and big multibillion-dollar online retailers, like Amazon, exactly the same,” John Donahoe, eBay’s chief executive, said in one of the emails.

He said only businesses with at least $10 million in annual out-of-state sales, or more than 50 employees, should be required to collect the sales tax.

Tod Cohen, eBay’s general counsel, said in an email statement: “EBay believes the bill would impose unfair tax burdens on small businesses, and does not include a reasonable protection for small businesses.”

Last month, 75 senators voted for a nonbinding budget resolution amendment expressing support for an online sales tax.

Editor's Note: Should Obama and Congress Raise Taxes? Vote Now.

But the legislation likely faces a tougher fight in the House. Judiciary Committee Chairman Bob Goodlatte, R-Va., said in a statement: “While [the bill] attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions.”

A coalition of anti-tax groups, including the Heritage Foundation and Americans for Tax Reform, has sent a letter to members of Congress urging them to vote against the bill.