A bill that would authorize states to collect sales taxes for online purchases easily passed the Senate on Monday with bipartisan support, but it faces a tougher hurdle in the House of Representatives.
The Marketplace Fairness Act sailed through the Senate, 69-27, without going through the usual committee process.
Majority Leader Harry Reid, D-Nev., took the legislation directly to the floor last month, bypassing the Senate Finance Committee, which is led by a prominent opponent of the bill, Sen. Max Baucus, D-Mont.
But in the Republican-ruled House, members will be more reluctant to vote for anything that looks like a new tax, and the legislation will have to clear the Judiciary Committee. That panel’s chairman, Rep. Robert Goodlatte, R-Va., has expressed concerns that the bill could hurt small businesses and, as written, is too complicated to navigate.
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“While it attempts to make tax collection simpler, it still has a long way to go,” Goodlatte said in a statement.
Current laws allow states to collect taxes only from retailers with physical presences in the buyers’ states, resulting in the loss of a projected $23 billion in annual sales tax revenue nationwide, according to a University of Tennessee study.
The bill would require all businesses that make more than $1 million in out-of-state sales to charge state and local taxes for remote purchases made on the Internet or by catalog. The businesses then would have to remit the taxes to the appropriate state agency.
Supporters of the bill say the change is needed because brick-and-mortar stores are at a competitive disadvantage to online-only businesses that don’t have to charge sales tax.
Technically, online or catalog shoppers are supposed to declare any out-of-state purchases on their state tax returns, but few do.
Retailers applauded the Senate’s passage of the bill Monday.
“Congress needs to address this sales tax disparity and allow retailers to compete freely and fairly," Stephen I. Sadove, chairman of the board of the National Retail Federation, a Washington trade group, said in a statement. “Retailers of all shapes, sizes and channels deserve a level playing field.”
Conservative groups such as the Heritage Foundation and Americans for Tax Reform oppose the bill, arguing that it would create a compliance nightmare for small businesses, which would have to keep track of almost 10,000 state, local and municipal tax codes.
“The main concern here is that this would institute regulation without representation,” said Curtis Dubay, senior tax policy analyst for the Heritage Foundation. “This would conscript businesses that have no dealings within a state – other than having customers there – to collect sales taxes for this state. We don’t think that states have the power to regulate businesses that do not reside within their borders.”
One of the legislation’s biggest critics is eBay Inc. The Internet auction site has been lobbying lawmakers to increase the small business exemption either to $10 million in annual out-of-state sales or to 50 employees.
“Our concern is that there are many small businesses that would now face significant new tax compliance burdens and that the Internet would be a harder place for them to grow,” said Brian Bieron, senior director of global public policy for eBay.
Bieron criticized Senate leadership for bringing the Marketplace Fairness Act directly to the floor without submitting it to debate and amendment in committee beforehand. He said he’s hopeful the bill will face more scrutiny and further modification in the House.
“We think the House process should improve the bill, we’re very confident about that,” he said. “. . . I think there are a lot of senators who are not convinced that this particular version of the bill is perfect in any way and they’re going to applaud a better version in the end.”