The Senate on Monday approved legislation that would for the first time allow states to collect billions of dollars in online sales tax revenue from out-of-state purchases.
The 69-27 vote is a major victory for retail groups and state governments, who for years have fought to close what they see as a loophole that allows as much as $23 billion in annual taxes from online sales to go uncollected.
“I’ve been saying it for the past 12 years,” lead sponsor Sen. Mike Enzi (R-Wyo.) said ahead of the vote. “This bill is about fairness, it’s about leveling the playing field for brick-and-mortar shops.”
The measure split Republicans senators, as 22 Republicans voted no in addition to five Democrats. Nineteen Republicans supported the measure.
Opponents, including some well-known conservative groups and the online retailer eBay, have vowed to keep up the fight in the House, where the path forward is less clear. They argue forcing small businesses to play tax collector for other states would be a huge burden, and that the bill would open retailers up to increased audits and compliance costs.
“Today the Senate is voting on whether to take a few more inches off the little guy,” Sen. Ron Wyden (D-Ore.) said. “I fear that what we’re going to do is crush some of those start-ups. ... This is a deeply flawed piece of legislation, [and] this debate will continue.”
The bill, which is backed by online powerhouse Amazon, empowers states to collect taxes on purchases made online by consumers in their states from out-of-state retailers. Under current law, states can only collect from companies that are physically located within their borders.
Customers who order items online from another state are often supposed to declare the purchases on their tax forms, but few do or are even aware of that requirement.
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. States would be allowed to collect taxes on out-of state purchases in six months, to give retailers time to prepare.
“This bill will affect the big boys, retailers like Amazon and eBay ... it does not affect these small retailers,” Sen. Dick Durbin (D-Ill.) said ahead of the vote Monday.
Durbin, the No. 2 Democrat in the Senate, helped steer the online sales tax bill around the Finance Committee with the help of Majority Leader Harry Reid (D-Nev.), another backer of the bill. Enzi and Sen. Lamar Alexander (R-Tenn.), both former state officials, were the top GOP backers of the measure.
Senate Finance Committee Chairman Max Baucus (D-Mont.), whose state is one of a handful without a sales tax, and others who opposed the bill said it should have gone through committee before coming to the Senate floor.
GOP leaders in the House are unlikely to maneuver around the Judiciary panel, and Rep. Steve Womack (R-Ark.), the lead GOP sponsor of the House online sales tax bill, has said he wants and expects it to proceed through the committee process. The House version has collected more than 60 co-sponsors so far.
House Judiciary Committee Chairman Bob Goodlatte has outlined a host of concerns about the measure, though the Virginia Republican and other leading GOP lawmakers have also said they understand the concerns of brick-and-mortar stores. He has said that the Senate proposal remains too complex, and would force businesses to comply with too many different tax rates and systems.
House Budget Committee Chairman Paul Ryan (R-Wis.), meanwhile, has expressed concern that the current bill could expand the government’s taxing authority more than is necessary. Other skeptics, such as eBay, want the exemption to climb to $10 million.
Still, supporters like Jason Brewer of the Retail Industry Leaders Association (RILA) say they are confident that momentum is on their side.
“There are very few things that get this level of support in the Senate,” Brewer, RILA’s vice president for communications and advocacy, told The Hill on Monday. “We feel like we’re in a pretty good position.”
Brewer said supporters were encouraged that Goodlatte wants to take a look at the online sales tax issue, even with his long list of concerns, and say that the support of Republican governors including Chris Christie of New Jersey is going a long way to shore up support.
Bob McDonnell, Virginia’s GOP governor, is a staunch supporter of the bill — and leads a state represented by both Goodlatte and House Majority Leader Eric Cantor (R-Va.).
“That’s a huge boost,” Brewer said.
But a spokesman for one of the key opponents of the bill, Heritage Action, said the House’s more deliberate action would allow the bill’s foes to make a better case about how the measure would burden small businesses and expand government power.
“There are a lot of unanswered questions still, and that process is going to change how we view this bill,” said Dan Holler, the Heritage Action spokesman. Holler also said that the online sales tax debate could easily get pushed to the back burner, given that negotiations over immigration and the debt ceiling are starting to heat up.
But Brewe said that supporters had an opening to strike in the coming months, given how protracted the immigration and debt-ceiling debates are expected to be.