Senate votes 74-20 to move forward with online sales tax bill

The Senate voted 74-20 on Monday to end debate on proceeding to a bill that would allow states to collect online sales tax.

The Marketplace Fairness Act, S. 743, would empower states to collect taxes on purchases made online by consumers in their states. 

The strong vote to end debate suggests supporters of the bill are likely to see it win approval in the Senate this week. Its path through the House, despite the support of many GOP governors, is less clear.

Senators in states without a sales tax voiced opposition to the bill Monday, arguing it would burden retailers in their states by forcing them to collect taxes for other state governments.

“I strongly oppose this measure because it would put a serious burden on small businesses that rely on the Internet to tap into growing markets, expand their operations, and create jobs,” Sen. Jeanne Shaheen (D-N.H.) said Monday. “Mandating that small businesses collect sales taxes for an additional 46 states and 9,600 tax jurisdictions would overload these entities with bureaucracy and red tape.”

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

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 or are even aware of the law.

“It’s only fair to the businesses across America, if they are required to collect sales tax on their sales, that those competing with them ought to do the same,” Sen. Dick Durbin (D-Ill.) said ahead of the vote Monday. Durbin is a leading co-sponsor of the bill.

Senate Finance Committee Chairman Max Baucus (D-Mont.) said the bill should have gone through committee before coming to the Senate floor, but last week Senate Majority Leader Harry Reid (D-Nev.) decided to call up the bill anyway.

“This bill is not ready for debate on the Senate floor,” Baucus said. “It forces our small businesses to be tax collectors for other states.

“And who is policing all of this? The bill as written today, has no audit or enforcement protection.”

Those supporting the bill have called it a “states’ rights bill” because it would allow states — many of which are battling large budget deficits — to collect the revenue they need to fund state programs.

“Right now, it’s not only unfair to small businesses, but it’s costing states and localities millions in tax revenue,” said Sen. Mike Enzi (R-Wyo.), the lead sponsor of the bill.

The Senate last month passed a non-binding budget resolution on a 75-24 vote supporting the Marketplace Fairness language. That strong bipartisan vote showed there is enough support to pass the bill. 

Most opposition to the bill has come from conservative GOP members joined by lawmakers from three states that don’t have sales tax: Montana, New Hampshire and Oregon. Delaware also doesn’t have a sales tax, but their senators didn’t oppose the bill.

Retail groups such as the National Retail Federation and the Retail Industry Leaders Association have backed the legislation, which senators have been pushing for years.

Reps. Steve Womack (R-Ark.), Jackie Speier (D-Calif.), Peter Welch (D-Vt.) and John Conyers Jr. (D-Mich.) have introduced companion legislation in the House.