Senators warn against online tax vote

Senators clashed on Thursday over a budget resolution amendment to empower states to tax online purchases.  

Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) argued in speeches on the Senate floor that the amendment, which is based on their Marketplace Fairness Act, would close an unfair loophole that benefits online retailers over local brick-and-mortar stores.

But Sen. Max Baucus (D-Mont.), the chairman of the Finance Committee, called the proposal "revolutionary" and said lawmakers should take more time to consider potential consequences before rushing to a vote. 

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"I think this amendment is not yet ready. It's premature," he said.

Sen. Kelly Ayotte (R-N.H.) warned that it would hurt businesses and destroy jobs. 

"There's absolutely nothing conservative about this," she said.

The Senate budget will not become law, but the vote is an important test of support for online sales tax legislation. If the measure garners 60 or more votes as an amendment, supporters are likely to push to bring the legislation directly to the floor, skipping the committee process.

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 but would exempt small businesses that earn less than $1 million annually from out-of-state sales.

Durbin argued that the bill would benefit small businesses, which are unable to compete with untaxed Internet giants. He argued that Internet retailers benefit from public services such as roads and electricity and should have to pay their fair share of taxes. 

Alexander argued the bill is an issue of "states rights" and that states should be empowered to tax online goods. He warned that without the legislation, many states will only increase other taxes to make up for lost revenue.

Sens. Roy Blunt (R-Mo.) and Al Franken (D-Minn.) also spoke in support of the proposal.

But Baucus insisted that the legislation go through his Finance Committee before being brought to the floor. He said he would be willing to consider the proposal as part of broader tax reform, but urged the supporters to abandon their attempts to bring the proposal to a full Senate vote.

"There are going to be a ton of amendments that are not going to be appreciated by the supporters of this bill, and they are going to dramatically weaken what they think they might have," he threatened.

Montana and New Hampshire, the home states of Baucus and Ayotte, respectively, are two of the five states that have no sales tax. 

Major retailers, including Amazon, support the online sales tax legislation, but it is opposed by eBay and anti-tax groups.