Senate overwhelmingly endorses states' collection of online sales taxes

The Senate on Friday overwhelmingly approved an amendment empowering states to collect taxes for online sales, delivering a huge victory to lawmakers and stakeholders who have devoted more than two years to the effort.

Sens. Mike Enzi (R-Wyo.) and Dick Durbin (D-Ill.) watched their amendment sail through the upper chamber on a 75-24 vote, confirming their hunch that their legislation has the support needed to pass outside the budget process.

The Senate accepted Durbin's amendment by voice vote after his Enzi's modifications were approved.

The lawmakers have been seeking a vote on their Marketplace Fairness legislation since last summer and finally got their answer  — that there is plenty support for the change in law that will allow states to collect sales tax on purchases made online by consumers in their states.

The legislation would exempt small businesses that earn less than $1 million annually from out-of-state sales.

“What we’re proposing is not a new tax, it is an existing tax owed in all but four states,” Durbin said. “We think it’s a fair thing to do, otherwise those small businesses don’t have a fighting chance.”

Under current law, states can only collect sales taxes from retailers that have a physical presence in their state. People who order items online from another state are supposed to declare the purchases on their tax forms, but few do.

“This gives states and state legislatures the right to collect sales and use taxes from all the people who owe it, rather than just some,” Sen. Lamar Alexander (R-Tenn.) said. 

Senators from states without sales tax objected to the amendment.

Sen. Kelley Ayotte (R-N.H.) said Durbin’s amendment “tramples on states rights” and would harm small businesses in her state because they would be forced to collect taxes for other states.

“There is nothing fair about federal intervention in the Internet marketplace,” Ayotte said. “It forces online businesses to become tax collectors. … This amendment should be called the Internet Tax Collectors Act.”

Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said he would prefer to deal with the complex issue in committee. 

“It basically forces all states to have sales tax whether they want them or not,” Baucus said. “In Montana, we don’t have sales tax but we’ll have to collect sales tax for other states under this law.”

Retailers have been major backers, with Matthew Shay, president and CEO of the National Retail Federation, calling passage a "critically important issue for retailers — both large and small — across the country."

“The retail community is unified in our commitment to pass the Marketplace Fairness Act and make it law," he said in a statement following the vote.

The Retail Industry Leaders Association (RILA), which had key voted the amendment, called the vote a “clear victory for main street retailers and those who believe in free and fair competition,” according to RILA President Sandy Kennedy.

"The overwhelming bipartisan vote in the Senate is proof-positive that the federal government’s special treatment of online-only retailers will soon be a thing of the past," Kennedy said.

The Senate also voted on the following budget amendments:

- Sen. Deb Fischer (R-Neb.) amendment 630, to allow businesses to refuse to provide some women’s healthcare, including access to birth control primary and preventative care, for religious reasons, failed 44-55.

- Sen. Bob Menendez (D-N.J.) amendment 651, on Medicare hospital wage index, failed 49-50.

- Sen. Tom Coburn (R-Okla.) amendment 409, to end the provision of Patient Protection and Affordable Care Act that increases payments to hospitals in a few states by reducing payments to rural states through the Medicare hospital wage index, passed 68-31.

- Sen. Susan Collins (R-Maine) amendment to restore a sensible definition of full-time employee for purposes of the Patient Protection and Affordable Care Act, passed on voice vote.

--Vicki Needham contributed to this report. 

--This report was updated at 7:55 p.m.