December 31, 2011, 12:00 AM

Online sales tax legislation has a running start heading into 2012

In the long-running effort to get federal legislation that would allow states to mandate sales tax collection by web and catalog retailers, 2012 may have a chance of seeing action with the Marketplace Fairness Act—with support from an unusual mix of Democrats, Republicans, retail chains and Inc. But eBay and others contend it would hurt small web merchants.

In every Congress over the past decade—going back to the early heyday of online retailing—legislators have put forward bills to let states mandate the collection of sales tax by web and catalog retailers.

Those bills are meant to supersede U.S. Supreme Court rulings dating from pre-Internet retailing times, requiring sales tax collection only by retailers with a physical presence in a state. But each bill died without getting much legislative traction.

Things may go differently in the current Congress, tax experts say, for at least two good reasons: A bill introduced last fall—the Marketplace Fairness Act—is unusual in that it has bipartisan backing. And e-commerce king Inc., the target of many of the online sales tax bills, is working alongside major retail chains to lobby for the Marketplace Fairness bill, contending that it would provide a level playing field for all retailers.

Daniel Schibley, a tax expert with CCH, a unit of Wolters Kluwer that publishes tax and business information, says the Marketplace bill has an edge over prior bills because it doesn't require states to join and abide by the strict rules of the Streamlined Sales and Use Tax Agreement—and as a result, may win over support of major states like New York that have resisted going along with Streamlined.

But the bill, which would require sales tax collection only by retailers with $500,000 or more in annual remote sales in any one state, still faces opposition. Tod Cohen, vice president and deputy general counsel of government relations at eBay Inc., for instance, has said the Marketplace bill would harm many small online retailers, such as eBay sellers, who can't afford to absorb the cost of tax collection. In testimony filed with the bill, Cohen says: "Do those who want a level playing field demand that all small business retailers get the same tax credits, the same sales tax exclusions and the same shipping rates?"

Stay tuned.

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