Senators renew Internet sales tax push

Greg Nash

Senators seeking to give states broader latitude to charge sales taxes on Internet purchases are preparing a last-ditch effort to pass legislation through Congress before the midterm elections.

A bipartisan group of lawmakers has been pushing such a fix for years, insisting it would level the playing field between brick-and-mortar and online retailers.

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Now, Senate supporters believe they have a perfect vehicle: the Internet Tax Freedom Act, a relatively uncontroversial measure, which sailed through the House on Tuesday, that would extend a long-standing ban on state and local taxes on Internet access. 

“Why wouldn’t we?” Sen. Mike Enzi (R-Wyo.), a longtime supporter of online sales tax legislation, said when asked if he planned to attach the Marketplace Fairness Act to the bill. “They’re a perfect fit.”

Enzi and several other senators released their new bill on Tuesday, which would attach the online sales tax measure to a 10-year extension of the Internet freedom bill. The House passed a permanent version of the online access bill on Tuesday.

The move sets up a potential showdown between the House, where GOP leadership and a key committee chairman have shown little interest in online sales tax legislation, and the Senate, which passed its bill more than a year ago with bipartisan support.

The Internet Tax Freedom Act expires Nov. 1, meaning providers could send out warnings about potential new taxes on online access just weeks before the election, an outcome that neither supporters nor opponents of the online sales tax legislation particularly want.

Still, Enzi said he and other backers of the online sales tax legislation, including Majority whip Dick Durbin (D-Ill.), would press ahead, despite anticipated resistance from Senate Finance Committee Chairman Ron Wyden (D-Ore.) and other opponents of the measure.

“That’s not taxing the Internet itself, which we’re against,” Enzi said. “That’s allowing states to collect the taxes that are due.”

The Senate’s Marketplace Fairness Act, passed in May 2013, would allow states to collect sales taxes from out-of-state retailers. Currently, states cannot enforce the collection of sales tax from retailers that do not have a physical presence in their borders. 

While sponsors said the sales tax bill would create parity between physical and online retailers, some members slammed the bill, saying it would subject small retailers to a complex maze of compliance burdens from thousands of state and local tax jurisdictions. 

Critics have also condemned the speed with which the bill moved through the Senate, and opponents on Tuesday said they saw no reason to link the sales tax and Internet access measures.

“They’re separate issues,” Wyden said, insisting that the online sales tax bill places burdens on Internet retailers that aren’t felt by brick-and-mortar stores. “The Marketplace Fairness bill as written now is contradictory to what the Internet Tax Freedom bill is all about.”

The online sales tax bill has faced more roadblocks in the House, where House Judiciary Committee Chairman Bob Goodlatte (R-Va.) has called for a simpler bill than what passed the Senate.

In September, Goodlatte released a set of seven principles that any online sales tax bill must meet to be considered in the Judiciary Committee, including equal burdens for physical and online retailers and language that encourages local governments to compete on tax policy. He also held a hearing on the issue in March.

Despite the principles, hearing and pledges to work on alternative approaches to the online sales tax bill, Goodlatte has not yet brought a bill up for consideration in the Judiciary Committee. Rep. Jason Chaffetz (R-Utah), a Judiciary Committee member, has pursued online sales tax legislation but has yet to release a measure.

Industry groups say the Senate is looking to move the online sales tax bill in the face of Goodlatte’s inaction.

“The Senate is getting ready to try to force the issue,” said David French, senior vice president for government relations at the National Retail Federation, which has aggressively lobbied Congress to pass an online sales tax bill.

The Senate sponsors of the Marketplace Fairness Act are “interested in moving the bill on any vehicle they can,” and the Internet Tax Freedom Act is a “very likely vehicle,” French said.

Still, Senate Majority Leader Harry Reid (D-Nev.) and Durbin would have to move the combined measure over the objections of Wyden, who is the original co-author of the Internet access bill and whose committee has jurisdiction over online sales tax issues. 

Steve DelBianco — executive director of NetChoice, which represents online companies including eBay and has lobbied against the Marketplace Fairness Act — said he hopes that Wyden will be a helpful ally in blocking the measure.

Wyden “is seen as a very popular and charismatic leader, especially on tech issues,” he said.

Reid has given Wyden more leeway, at least publicly, than the previous Senate Finance Committee Chairman, Max Baucus (D-Mont.). But Democratic leaders also appear to be accepting a House plan to prop up the Highway Trust Fund, even though Wyden has a similar proposal.

DelBianco said he was confident that the House would stand strong even if the Senate succeeds in attaching the online sales tax bill.

“I think they would find a way to send it right back to the Senate,” DelBianco said. 

Still, he added, “You always have to be concerned about sending something over to the Senate and having it come back as a disaster.”

But Rep. Steve Womack (Ark.), the primary GOP backer of the online sales tax legislation in the House, said the Judiciary Committee had plenty of time to craft an alternative measure.

“If it gets attached to something and comes back to us and it’s a must-pass piece [of legislation], then we have nobody to blame but ourselves,” Womack told The Hill. “The sands in the hourglass are slipping away.”

--This report was updated at 8:07 a.m.