E-Commerce: Internet Sales Tax Proposal Moves Forward

The proposed Marketplace Fairness Act — legislation designed to help states force online retailers to collect sales taxes — made it past its first procedural obstacle Monday evening when the Senate voted 74-20 to consider the proposal for debate and amendment. Some anti-tax activists have described the bill as a tax grab, potential bureaucratic nightmare and infringement on states’ rights, while others view it as a necessary step to save brick-and-mortar retailers.

According to The New York Times, the bill “is that rare piece of legislation that has turned Democrat against Democrat, Republican against Republican and business against business, while uniting states as different as New Hampshire, Montana and Oregon — which have no sales taxes — against virtually every other state.”

The article suggests that retailers would collect an estimated $22-24 billion as a result of the bill. The Senate is expected to have its final vote by the end of this week, but the House has yet to announce when it plans to address the issue.

Convenience of online shopping has placed brick-and-mortar retailers at a disadvantage against online competitors. Additionally, physical stores are facing the growing trend of “showrooming,” in which consumers inspect products in a store and then order online to get better prices and, in some cases, avoid sales taxes.

“We think this is inevitable, with states looking for revenue, with the growth of e-commerce,” said Stephen Schatz, a spokesman for the National Retail Federation.

“What it means is a lot of money for states and localities,” noted Senator Richard Durbin, Democrat of Illinois.

President Obama supports the bill. The White House said it “will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies.”

Opponents envision a bookkeeping fiasco in which retailers would have to track some 9,000 sales-tax regimes, while companies in states with no sales taxes would be forced to create new collection processes.

Senator Ron Wyden, Democrat of Oregon, describes the legislation as “a targeted strike against the Internet and a targeted strike against the digital economy.”

“Many of the largest Web retailers have already begun collecting sales taxes,” notes the article. “Amazon.com has joined a vast constellation of brick-and-mortar retailers in collecting taxes, leaving eBay to fight an increasingly lonely battle. In March, the Senate held a test vote of sorts, a nonbinding amendment to the Senate budget that mirrored the Marketplace Fairness Act.”