Senate advances online sales tax measure

After the threat of a midnight vote and weekend work, the Senate agreed Thursday to advance a bill that would allow states to collect online sales tax.

In a 63-30 vote, the Senate ended debate on The Marketplace Fairness Act, S. 743, which would empower states to collect taxes on purchases made online by consumers in their states. 

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The Senate will vote on final passage of the bill when senators return May 6 from a weeklong recess.

On Wednesday, the Senate voted 75-22 to proceed to the bill and last month, the body passed a nonbinding budget resolution supporting the Marketplace Fairness language on a 75-24 vote. Support for the bill dwindled because now there will not be an open amendment process. 

Still the strong votes suggest supporters of the bill are likely to see it win approval since final passage requires only a majority. Its path through the House, despite the support of many GOP governors, is less clear.

“This bill will allow the states to ask Internet retailers when they sell in the state to collect sales tax,” Sen. Dick Durbin (D-Ill.) said Thursday. “It is very straight forward.”

Some senators in states without a sales tax had been blocking progress on the bill, arguing it would burden retailers in their states by forcing them to collect taxes for other state governments.

Sen. Ron Wyden (D-Ore.) said he has proposed a compromise to Durbin that would allow states to opt out, but Durbin has not seemed willing to negotiate since he knows he has enough votes to pass the bill as is.

“The senator from Illinois has not responded in writing to any of the offers we have made,” Wyden said. “We’d like to walk through this process and be able to tell our constituents … that they are going to be able to shape their own future.”

Durbin did offer to allow amendments from those opposing the bill, but those senators continued to delay the advancement of the bill and denied all other amendments from being considered on Wednesday and Thursday.

The bill would exempt small businesses that earn less than $1 million annually from out-of-state sales and requires states to provide retailers with software to calculate sales taxes based on a buyer’s zip code.

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.

Senate Finance Committee Chairman Max Baucus (D-Mont.) and others who opposed the bill said it should have gone through committee before coming to the Senate floor.

“If the proponents of this bill really want this bill to become law, they would allow it to go through the Senate Finance Committee,” Baucus said Thursday. “But this way — not going through committee, going straight to the floor — makes it less likely this bill will become law.”

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.

“My colleagues on the other side say they are for states’ rights,” Wyden said Wednesday. “[But] they’re really for states’ rights if they think the states are right.”

States have estimates that they are losing out on more than $20 billion in sales tax revenue because of this online sales tax loophole.

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 its senators didn’t oppose the bill.

Throughout the week, Senate Majority Leader Harry Reid (D-Nev.) threatened weekend work and late night votes in order to finish work on the bill before the recess, but that was averted after a deal was reached. 

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.