Online tax to be offered as amendment to small-business bill

A bipartisan group of senators plans to offer online sales tax legislation on Tuesday as an amendment to a small-business tax credit bill.

Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) said the amendment closely resembles their Marketplace Fairness Act, a bill they introduced earlier this year to empower states to collect taxes on online purchases.

The Senate is expected to debate and vote on the Small Business Jobs and Tax Relief Act later this week.

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 purchase on their tax forms, but few do.

Supporters of the bill argue that allowing online purchases to go untaxed gives an unfair advantage to online retailers over traditional, brick-and-mortar stores.

Retail groups on Tuesday applauded the senators’ move, and expressed hope that the legislation could be enacted before the end of the current Congress.

“States have sent a bi-partisan message to Washington that it’s time to end special treatment for online-only retailers and close the sales tax loophole,” Katherine Lugar, the executive vice president for public affairs at the Retail Industry Leaders Association, said in a statement.

“This legislation offers the right balance of protection for small online startups, while giving all retailers the opportunity to compete on a level playing field.”

A host of GOP governors, including Chris Christie of New Jersey, Mitch Daniels of Indiana and Rick Snyder of Michigan, have endorsed the bill, arguing it will help them balance their budgets.

Online giant Amazon has also backed the tax. The company, which has fought numerous state efforts to tax online purchases, argues that a single national framework is preferable to a patchwork of state laws.

But with much of Washington having already entered campaign mode, it remains to be seen whether an online sales tax measure can make its way through Congress this year.

Some conservative heavyweights and other online companies argue the tax will stifle Internet commerce.

Sen. Jim DeMint (R-S.C.) and Grover Norquist’s Americans for Tax Reform say the measure will only increase the burden on taxpayers. Auction site eBay has also lobbied against the online tax.

The House Judiciary Committee is expected to hold a hearing on that chamber’s measure — the Marketplace Equity Act, sponsored by Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) — later this month.

But rank-and-file Republicans in that chamber have suggested that that, while they sympathize with their local retailers, they are also concerned about backing anything that could hand taxpayers a higher bill. 

—This post was updated at 5:36 p.m.

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