The U.S. Senate has overwhelmingly passed a nonbinding proposal to allow states to collect sales tax on Internet sellers that have no presence within their borders.
The proposal was an amendment to a 2014 budget bill that the Senate debated Friday. It was pushed by Senators Mike Enzi, a Wyoming Republican, and Dick Durbin, an Illinois Democrat, and was designed to give backers a sense of whether they had enough votes to push forward with final legislation to impose an Internet sales tax.
The vote showed they have plenty of backing to overcome any filibuster seeking to block a final sales tax bill. Sixty votes are needed to overcome a filibuster, and senators voted 75-24 for the nonbinding resolution. The Enzi and Durbin amendment would allow the Senate Budget Committee to include the sales tax in the budget, providing it does not increase the federal deficit.
The budget amendment is an initial step toward allowing state and local governments to collect sales taxes from out-of-state retailers who sell more than US$1 million worth of products in a year over the Internet. Enzi and Durbin are the lead sponsors of the Marketplace Fairness Act, which would still have to pass through Congress before a tax is imposed.
"Let's stand up for retailers across America," Durbin said on the Senate floor. "Let's say to the Internet retailers, 'we're glad you're doing well, but play by the same rules.'"
In a growing number of cases, shoppers check out products at local stores, then order the product online to save on sales taxes, supporters of the amendment said.
Congress needs to "level the playing field" between online retailers and other bricks-and-mortar counterparts, Enzi said. "Now is the time for Congress to act," he said.
Forty-six U.S. states now have sales taxes, but a 1992 ruling by the U.S. Supreme Court prohibited states from collecting sales tax from catalog sellers because of the burden it would place on the sellers. The court, however, left it up to Congress to allow states to collect sales taxes on remote sales if the states created a streamlined tax collection system.All states with sales taxes require Internet shoppers to report on their Internet purchases and pay taxes, but the rules are not well-known and few shoppers comply.
Supporters of the amendment said the current tax system isn't fair to brick-and-mortar businesses, which have to collect sales taxes from their local shoppers.
Opponents dispute process
Opponents of online sales tax proposals, which some lawmakers have advocated for over a decade, said a budget bill isn't the correct vehicle to push an Internet sales tax.
An online sales tax would allow states to force retailers located in other jurisdictions to collect their taxes, said Senator Max Baucus, a Montana Democrat. "Not only is this complicated, it's revolutionary," he said.
Instead of attaching the proposal to a budget resolution, the Senate should debate the proposal as part of comprehensive tax reform, Baucus said.
Online sales tax bills have been introduced in the Senate going back 14 years and there's been plenty of debate about them, said Senate Lamar Alexander, a Tennessee Republican. The amendment is about states' rights to collect taxes, he said.
States miss out on about $23 billion a year in uncollected taxes in the current system, supporters of the amendment said.
Senator Kelly Ayotte, a New Hampshire Republican, said the Marketplace Fairness Act is misnamed. The amendment should be called the "Internet Tax Collection Act," she said. "This is another attempt to turn our businesses into tax collectors." Businesses in New Hampshire, which doesn't have a sales tax, would be forced to collect sales tax for other states, she said.
Senator Ron Wyden, an Oregon Democrat, argued against the amendment, saying it would encourage U.S. Internet sellers to move overseas, where it's tougher for states to collect sales taxes. "The Internet is now the shipping lane of the 21st century, and foreign retailers are going to get an advantage," he said.
But past arguments against the sales tax suggesting e-commerce was in its infancy and needed to be protected are no longer true, Durbin said. "You're asking for a safe haven here, an advantage over a lot of good small businesses in my state," he said.
The We R Here Coalition, representing businesses opposed to an online sales tax, criticized the amendment's sponsors for adding it to the budget resolution.
"Here they go again—another attempt by senators to sneak through an increase to the burdens on small online retailers, turning them into tax collectors instead of job creators," Phil Bond, executive director of the coalition, said in a statement. "There are good reasons this policy hasn't been considered in the U.S. Senate for over a decade: Taxpayers don't like it, it turns the Internet into a tax collection platform."