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 EnziMike EnziTop Dem: Trump's State Dept. cuts a 'Ponzi scheme' Republicans eye strategy for repealing Wall Street reform Lawmakers fundraise amid rising town hall pressure MORE (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 WydenRon WydenThe Hill’s Whip List: Where Dems stand on Trump’s Supreme Court nominee Overnight Regulation: Senate moves to strike Obama-era internet privacy rules Overnight Tech: Senate votes to eliminate Obama internet privacy rules | FCC chief wants to stay out of 'political debate' on fake news | Wikileaks reveals new CIA docs MORE (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 DurbinDick DurbinThe Hill’s Whip List: Where Dems stand on Trump’s Supreme Court nominee Gorsuch rewrites playbook for confirmation hearings Gorsuch: I'm 'sorry' for ruling against autistic student MORE (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 ReidHarry ReidThis obscure Senate rule could let VP Mike Pence fully repeal ObamaCare once and for all Sharron Angle to challenge GOP rep in Nevada Fox's Watters asks Trump whom he would fire: Baldwin, Schumer or Zucker MORE (D-Nev.), another backer of the bill. Enzi and Sen. Lamar AlexanderLamar AlexanderOvernight Regulation: Trump's Labor nominee hints at updating overtime rule Trump's Labor pick signals support for overtime pay hike Live coverage: Day three of Supreme Court nominee hearing MORE (R-Tenn.), both former state officials, were the top GOP backers of the measure.
Senate Finance Committee Chairman Max BaucusMax BaucusGOP hasn’t reached out to centrist Dem senators Five reasons why Tillerson is likely to get through Business groups express support for Branstad nomination MORE (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 WomackSteve WomackGOP blocks Dem effort to request Trump tax returns Amash misses vote, ending perfect attendance streak The Hill's Whip List: 36 GOP no votes on ObamaCare repeal plan MORE (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 GoodlatteBob GoodlatteWeek ahead: Senate takes aim at Obama-era 'blacklisting' rule House panel blocks Dem effort on Trump's potential business conflicts House panel to hold hearing on foreign surveillance law MORE 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 RyanPaul RyanReport: Ryan pleaded on one knee for ObamaCare repeal vote Republican quits House Freedom Caucus Ted Koppel tells Sean Hannity he is bad for America MORE (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 CantorEric CantorDemocrats step up calls that Russian hack was act of war Paul replaces Cruz as GOP agitator GOP shifting on immigration MORE (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.