Debate rages over contentious Internet sales tax proposal

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Pay up, sucka! The U.S. Senate is rushing to vote on a bill that would mean you—yes, you—would have to start paying sales tax for your online purchases, but opponents warn that pushing the proposal through could create some severe side effects.

The legislation has been hustled to the Senate floor by its leadership to expedite action on the measure and send it to the House of Representatives.

Senate ramrods are so intent on passing the bill that they circumvented sending it to committee before floor action, as is the norm. (The fact that the legislation would have ended up in a committee chaired by a major opponent of the measure might have had something to do with the leadership's move.)

If the measure makes it to President Obama's desk as it's written now, not only would consumers need to pay more out-of-pocket for online purchases, but opponents say the bill could open several other cans of worms, as well.

For example, some 10,000 jurisdictions collect sales taxes in the nation. Not only do those tax rates vary among the jurisdictions, but so does what products are subject to those taxes. For example, diapers might be taxed in one state, but not another.

The accounting burden for a mom-and-pop online shop would be onerous.

An exemption is included in the bill for online businesses making less than $1 million annually, but some say that exemption is too low. eBay, for instance, is pushing for the limits to be raised to $10 million in out-of-state revenue or an exemption be made for companies with less than 50 employees.

There are also consumer privacy issues that are ignored by the bill, according to one of its outspoken opponents, Sen. Ron Wyden (D-Ore.), who hails from one of four states in the union without a sales tax.

He argues that the law would allow taxing jurisdictions to peek into their citizens' lives in a way that they're unable to do now.

"[S]tate tax authorities would get troves of data about online purchases delivered into their state," he said during a Senate session.

"The standard misuses apply," he continued. "It might be transferred to other organs of government, legally or not, for investigation and examination. Curious state bureaucrats might look up the purchasing habits of ex-spouses, famous names, and political figures. The list goes on and on."

Wyden also raised the issue that the bill may encourage more consumers to buy goods in foreign countries in order to avoid domestic sales taxes.

The case for taxation

Brick-and-mortar retailers, though, say—as they've been saying for years—the legislation is needed to modernize sales tax collection so it can keep current with real-world change in the marketplace.

Many states rely on sales tax to fund basic government functions, and online sales are skyrocketing.

"This legislation will level the playing field for retailers, while protecting small businesses from complicated laws in other states with a healthy small business exemption," National Retail Federation senior vice President David French said in a letter to Senate members last week.

“As the retail industry evolves and digital commerce becomes a more prominent portion of total retail sales, it is critical that the tax laws not discriminate between similar businesses based on how their products are distributed," it added.

While French's arguments are likely to sway the Senate this week, they may not be as persuasive in the House, where the bill is looked on with some degree of skepticism.

The jurisdictional quagmire surrounding sales tax collection is particularly bothersome to the chairman of the House committee that will be reviewing the bill after it clears the Senate.

"While it attempts to make tax collection simpler, it still has a long way to go," Judiciary Committee Chairman Bob Goodlatte (R-Va.) told The Hill Sunday.

"There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions," he added.

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