Internet Sales Tax One Step Closer to Reality

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Alamy
A tax on online sales, long sought by bricks-and-mortar retailers, moved one step closer to reality Monday when the Senate voted 69-24 in favor of the Marketplace Fairness Act.

The bill seeks to fix what many see as a tax loophole: Under current U.S. law, an online retailer is only obligated to collect a state's sales tax from shoppers if it has a physical presence in that state. While a few states have circumvented that requirement with "affiliate nexus" laws that primarily target Amazon.com (AMZN), the vast majority of states still don't collect tax on online sales by out-of-state sellers.

The bill before Congress wouldn't impose a national sales tax, but it would empower states to tax those out-of-state online sellers if they so choose. It has the support of numerous retailers, as well as the National Retail Federation, the industry's main lobbying group.

While previous versions of the bill have died on Capitol Hill in recent years, today's vote didn't come as a great surprise: More than a month ago the Senate took a symbolic vote on the measure, and passed it 75-24. And while the bill is opposed by a few key conservatives, it also has the surprising support of e-commerce's heaviest hitter, Amazon. Amazon's support of the bill can be traced to the company's push to establish a wider physical presence to facilitate faster delivery -- and the fact that it can handle the burden of taxation better than smaller online retailers.

The loudest voice of opposition in the business community has belonged to eBay (EBAY). Starting Sunday, the company began sending emails to more than 40 million users informing them of the bill and asking them to write their congressmen. In its current form, the bill only exempts online sellers with less than $1 million in out-of-state sales; eBay wants that threshold raised so that it only applies to businesses that do more than $10 million in sales and have more than 50 employees.

"This legislation treats you and big multi-billion dollar online retailers - such as Amazon - exactly the same," wrote eBay CEO John Donahoe in the letter.

The Marketplace Fairness Coalition, which is comprised of retailers supporting the bill, countered with its own letter noting that the vast majority of eBay's sellers would be exempted from collecting sales tax.

The impact on consumers, meanwhile, would be varied, with many Americans seeing little to no impact on their shopping experience. Five states -- Alaska, New Hampshire, Delaware, Montana and Oregon -- don't charge a sales tax at all, so residents of those states would be unaffected by the law. Several other states, including New York and Illinois, have already passed affiliate nexus laws, which means residents of those state are already paying sales tax for purchases from major online retailers like Amazon. And a few others, like South Carolina and Nevada, have already struck deals with Amazon to start collecting sales tax at a later date.

That leaves the states that charge sales tax but haven't passed affiliate nexus laws. Successful passage of the bill would give these states the option of collecting sales on online purchases. In states that choose to exercise this new right, online shoppers will find themselves paying an addition 5%-10% on their purchases, depending on the state's tax rate.

That passage now depends on the Republican-controlled House, where it's expected to have a tougher time than it did in the Senate. The Wall Street Journal notes that House speaker John Boehner has been largely silent on the issue and Paul Ryan has expressed ambivalence; meanwhile, Rand Paul has editorialized against the bill, calling it an "internet tax mandate."

The question, then is whether the momentum from today's bipartisan vote is enough to overcome conservative opposition in the House. If it does, the days of tax-free online shopping will soon be at an end.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.



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246 Comments

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Wildhawg

NO WAY, JOSE! Issue is DOA in the House. Read my lips: NO MORE TAXES!...of any kind.

May 08 2013 at 8:50 AM Report abuse +1 rate up rate down Reply
sugarcreekchile

Retailer's associations make large donations to political campaigns. These politicians have been paid for their vote against the American consumer and for the brick and mortar stores.

May 07 2013 at 11:23 PM Report abuse rate up rate down Reply
ron

So in two years after our budget has been fixed...all the new tax's will stay in law, and congress can go back to blind spending.......end the war, and we could live tax free for years to come.

May 07 2013 at 9:30 PM Report abuse -1 rate up rate down Reply
kayo1025

Greedy idiots.

May 07 2013 at 9:13 PM Report abuse +1 rate up rate down Reply
mholley2

WILL YOU S.O.B.S IN GOVERMENT quit sending our hard earned dollars over too YOUR FRIENDS the a hab brother hood. [RAG HEADS FOR SHORT] THEN TAX THE HELL OUT OF US. KISS MY GRITS DE MO RATS IN THE SENATE,

May 07 2013 at 8:00 PM Report abuse +3 rate up rate down Reply
jab2165

If this goes thru, it will not be good for the economy. If people have to spend on sales tax, the stockholders stock might go down. People will buy less than they do now. High gas prices keep the economy down too.

May 07 2013 at 7:48 PM Report abuse +4 rate up rate down Reply
mpusairsret

Next a law to require equalization to ensure that all retailers regardless of location pay the same rate for real estate and personal property taxes.

May 07 2013 at 7:41 PM Report abuse rate up rate down Reply
Jeremiah

Money grubbing democRATS just can't seem to get their greedy little paws on enuf of our deniro. They're making a good stab at it, tho....The RATS are terrific at paving roads and starting wars, but they do nothing well requiring nuance.

May 07 2013 at 7:40 PM Report abuse +3 rate up rate down Reply
1 reply to Jeremiah's comment
kayo1025

You're right, but plenty of Republicans voted for it, too. The Republicans in office are shameful. We need some folks who can say "no", and mean it.

May 07 2013 at 9:15 PM Report abuse +1 rate up rate down Reply
1 reply to kayo1025's comment
ron

We need Republicans to stand up to the Tea Baggers.....if you are not strong enough to stand against them, how do you expect to pass the medias personal assaults. Atleast the media can only bring up verifiable facts against you (ok maby not true) but Tea baggers can make stuff up and not suffer or get held to the standard of the media.

May 07 2013 at 9:36 PM Report abuse -1 rate up rate down
Dave Yost

The select few in DC now tax us at will. They do not get our votes on the taxes they do not hear our voices, They are taking more and more money from us everyday and we are allowing it. Is nearly 17 trillion in debt not enough spending? My parents did not pay all these taxes and had just as much as I do today. I suggest you make or look up a list of all the taxes you pay including tax on items you buy it will shock you

May 07 2013 at 7:25 PM Report abuse +4 rate up rate down Reply
1 reply to Dave Yost's comment
ron

In Michigan we have a govener who taxs at will, even though he promised he wouldnt. The sneaky bas-erd waits until a holiday or a legislative break to hammer his will on some other bill p[reviously allowed. I retired, and lost $400 to State Tax, and another $200 a month to federal. Thats 20% of my pension that was not taxed when I put in my papers, and it equates to a lot of money on a fixed income. They are fixing the problems on todays workers that they took 40 years of unchecked spending to destroy.

May 07 2013 at 9:43 PM Report abuse rate up rate down Reply
Dave Yost

Liberals taxes are not normal. We give the feds billions to waste and get what in return? You are giving this nation away to the select few in DC.

May 07 2013 at 7:19 PM Report abuse +1 rate up rate down Reply