Lawmakers claim momentum in push for Internet sales tax

A bipartisan group of 35 House members and 18 senators introduced legislation on Thursday that would allow states to tax online purchases.

"This is gaining momentum, and this is the year to do it," Sen. Mike Enzi (R-Wyo.), the lead Senate sponsor, said during a Capitol Hill press conference.

Rep. Steve Womack (R-Ark.), the bill's top author in the House, said he is confident the measure will become law this year.

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"I have talked to [Senate Majority Leader] Harry Reid [(D-Nev.)]. Harry Reid wants to bring this to the floor," Sen. Dick Durbin (D-Ill.) said.

Many of the same lawmakers pushed similar legislation last year, but the measures never made it to the floor for a vote. The latest version of the bill, called the Marketplace Fairness Act, combines several proposals from the last Congress and includes revisions aimed at winning over skeptics. 

The lawmakers argued that their bill would close an unfair loophole that benefits online retailers over local brick-and-mortar stores.

"Government shouldn't be in the business of picking winners and losers," Rep. Jackie Speier (D-Calif.) said.

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.

The Marketplace Fairness Act would empower states to tax online purchases. The bill would exempt small businesses that earn less than $1 million annually from out-of-state sales — an increase from the $500,000 threshold proposed last year.

Womack and Enzi argued that the measure is about states' rights, emphasizing that the proposal would not create any new taxes — it would only empower states to collect taxes that are already owed to them.

Enzi said states are collectively losing $23 billion every year because of their inability to tax online purchases.

The National Retail Federation is lobbying aggressively for the legislation.

"We need a level playing field to compete on," Scott Durchslag, the e-commerce president of Best Buy, said in an interview, adding that the bill is the company's top priority in Washington.

Online giant Amazon also backs the tax. The company reportedly has plans to expand its network of physical distribution centers, which would make it subject to state sales taxes under current law.

Critics of the bill say it would create a complicated new tax system and would stifle Internet commerce.

“Congress should reject any Internet sales tax legislation that throws a new tax barrier in front of small businesses," Tod Cohen, eBay's deputy general counsel, said in a statement.

Americans for Tax Reform President Grover Norquist warned the legislation would be a nightmare to enforce.

"At the end of the year if there are any disputes over sales tax collection, the Virginia business would be subject to the New York Department of Revenue and New York Courts," he said in a statement.

At the press conference, the bill's sponsors argued that simple software could help retailers determine how much tax they owe for purchases from different states.

Durbin said he is trying to convince Senate Finance Committee Chairman Max Baucus (D-Mont.) to take up the legislation.

"He has some concerns. We are trying to address them," Durbin acknowledged. "It is important that we bring this matter up sooner rather than later." 

Baucus's home state of Montana is one of only five states without a sales tax.

Durbin also argued that Congress should consider the online sales tax as a standalone issue and should not try to wrap it into a large debate about reforming the federal tax code. 

"It has nothing to do with federal tax revenue," Durbin argued.

The bill will head to the Judiciary Committee in the House, but committee Chairman Bob Goodlatte (R-Va.) has shown little enthusiasm for the proposal in the past.

Sen. Heidi Heitkamp (D-N.D.), one of the new co-sponsors of the legislation and the former tax commissioner of North Dakota, was the losing party in the 1992 Supreme Court decision that ruled that, unless Congress changed the law, states cannot tax out-of-state retailers.

—Updated at 5:45 p.m.