May 6, 2013, 5:14 PM

U.S. Senate passes web sales tax bill

The bill faces what some experts say will be a tougher vote in the House.

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The U.S. Senate today passed the Marketplace Fairness Act by a vote of 69-27, taking a major step toward a new law designed to greatly expand the number of Internet and catalog retailers required to collect sales tax.

“It's clearly an idea whose time has come,” U.S. Sen. Dick Durbin, (D, IL) one of the co-sponsors, said just before the vote this afternoon, noting that Congress has been dealing with the issue for more than 20 years. He and other supporters reiterated earlier arguments that the bill will not create new taxes, but only mandate collection of existing sales tax that now mostly go uncollected. They also argue it will “level the playing field” between web-only merchants that don’t collect tax outside of their home states and store retailers that must collect sales tax online in all states where they have bricks-and-mortar locations.

The bill is supported by retail chains and industry groups including the National Retail Federation and Retail Industry Leaders Association, as well as Amazon.com Inc., the world’s largest retailer by web sales. Amazon is No. 1 in the Internet Retailer Top 500 Guide. The bill is opposed by many online retailers, including eBay Inc. and Overstock.com Inc., that are represented by industry lobbying groups such as NetChoice.

If a similar version of the bill is passed in the U.S. House and enacted into law, the legislation will overturn existing federal law that says states can only mandate sales tax collection by retailers with an in-state physical presence, nexus in legal terms, such as stores or distribution centers. The Senate bill exempts retailers that do less than $1 million a year in remote sales, or sales in states where they have no physical presence.

But the bill’s prospects in the House are unclear. The House bill is before the House Judiciary Committee and its subcommittee on Regulatory Reform, Commercial and Antitrust Law. Judiciary Committee chairman Rep. Bob Goodlatte (R, VA) has said he recognizes the importance of the legislation for addressing the concerns of bricks-and-mortar retailers who must compete with Internet retailers that don’t have to collect sales tax, but that the legislation must be improved.

“I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet,” he said in a statement issued by his office today. “While it attempts to make tax collection simpler, it still has a long way to go.” Among his objections are what he calls the lack of uniformity on tax rates. “Businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions,” he says.

But Rep. Steve Womack (R, AR), one of the sponsors of the House bill, says he and Senators Mike Enzi (R, WI) and Lamar Alexander (R, TN), who co-sponsored with Senator Durbin the Senate bill, have already discussed such concerns with Goodlatte and feel that they can work toward common legislation. “Our staffs are continuing to meet, and I am encouraged by our conversations and by the growing recognition that we can’t kick this can down the road any longer,” Womack said earlier today. “Saving local retail business depends on Congress closing this tax loophole once and for all. Today, the Senate is expected to pass the Marketplace Fairness Act, and I will continue to work with my colleagues in the House to make sure we do.”

Womack’s office said today that the House bill has 65 co-sponsors in addition to Rep. Womack.

There are some 9,600 sales tax jurisdictions in the U.S., including states, counties, cities and other local entities. In many cases, there are differences about what items are subject to tax, and how items are categorized. Opponents say it would be difficult for web retailers to figure out how much to pay each jurisdiction. Proponents say there is tax software available that calculates how much is owed on each purchase.

 

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