Internet sales tax advances after Obama endorsement

Legislation that would empower states to tax online purchases cleared a key hurdle in the Senate on Monday after winning an enthusiastic endorsement from President Obama. 

Senators advanced the bill in 74-20 procedural vote on Monday evening, just one vote short of the backing it received in a test vote last month. Twenty-six Republicans joined Democrats in moving forward with the bill.

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The Senate will now begin debate on amendments. The chamber is expected to hold the decisive vote on the bill — known as the Marketplace Fairness Act — later this week.

Major retailers are putting all their lobbying muscle behind the legislation, arguing it would close an unfair loophole that benefits online merchants over brick-and-mortar stores. The National Retail Federation, which represents chains such as Macy’s, and the Retail Industry Leaders Association (RILA), which counts Target and others among its membership, announced it would score lawmakers’ votes. 

The White House gave the bill a ringing endorsement on Monday.


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“We have heard overwhelmingly from governors, mayors and the business community on the need for federal legislation to level the playing field for our businesses and address sales tax fairness,” White House press secretary Jay Carney said.

But signs of trouble for the bill also emerged as Wall Street groups urged the Senate to slow down and eBay began marshalling its users in a massive campaign to kill it.

The Securities Industry and Financial Markets Association and the Financial Services Roundtable said the measure could pave the way for financial transaction taxes on the state level, an idea that Wall Street and its supporters fiercely oppose. 

“It’s important for Congress to explore all the possible outcomes and costs of the proposal, especially the impact on consumers,” Scott Talbott, the senior vice president of public policy for the Roundtable, said in a statement.

“A transaction tax on financial services products will hurt retail investors, retired Americans, and small businesses, effectively making it more expensive for them to invest and plan for the long-term. Without hearings, these implications and others will not be properly addressed.”

Even if the bill clears the Senate, it faces an uncertain future in the GOP-controlled House. Conservative groups Heritage Action, Americans for Prosperity and FreedomWorks are rallying opposition against it, and have vowed to score votes in favor against lawmakers.

The Marketplace Fairness Act would empower states to tax out-of-state online retailers, but would exempt small businesses that earn less than $1 million annually.

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 proposal has the support of a host of governors, including Republicans Chris Christie of New Jersey, Rick Snyder of Michigan and Bob McDonnell of Virginia. Passage of the bill could bring billions of dollars in new revenue to state governments.

The bill has split the tech industry, pitting eBay against the retail giant Amazon.

In email to eBay users, eBay CEO John Donahoe argued that the bill would “penalize small online businesses,” urging the site’s millions of users to contact their members of Congress and voice opposition.

The company is lobbying for Congress to increase the small-business exemption from $1 million to $10 million. 

Donahoe also took a shot at Amazon, a key supporter of the legislation.

“Amazon, for example, has fought harder than any other company to require all businesses to collect sales taxes online, while also seeking special tax benefits as it expands its warehouses throughout the country. It’s bad tax policy,” Donahoe wrote.

Amazon argues that a single national framework for tax collection is preferable to a patchwork of state laws. 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.

The Senate’s move on the sales tax bill came abruptly last week after Senate Majority Leader Harry Reid (D-Nev.) shelved gun control legislation. Some senators said they were taken aback by the move to the bill and are asking for more time.

Sens. Kelly Ayotte (R-N.H.), Ron Wyden (D-Ore.), Jon Tester (D-Mont.), Jeanne Shaheen (D-N.H.), Marco Rubio (R-Fla), Mike Lee (R-Utah) and Ted Cruz (R-Texas) sent a letter to Reid on Monday urging him to delay the legislation, which has not gone through the committee review process. 

They warned the bill would “erode” states’ rights and “result in crippling compliance costs on small Internet businesses.”

“At the very minimum, we believe these concerns warrant a thorough vetting of the bill through regular order,” they wrote.

Delaware, Montana, Oregon, New Hampshire and Alaska have no state sales tax. 

Sen. Max Baucus (D-Mont.), the chairman of the Finance Committee, criticized Reid for bypassing his committee, which has jurisdiction over taxes.

“This bill is not ready for debate on the Senate floor. It has not been completely thought through. It is full of unintended consequences that could seriously harm America’s small businesses,” Baucus said.

Supporters argue the bill would actually protect states’ rights. They say it would not force any state to collect taxes, and argue that states that choose to tax online purchases could lower other rates.

Sens. Dick Durbin (D-Ill.), Lamar Alexander (R-Tenn.) and Mike Enzi (R-Wyo.) are the lead Senate co-sponsors of the legislation.

“Thousands of local businesses are forced to do business at a competitive disadvantage because they have to collect sales tax and use tax, and the remote sellers don’t,” Enzi said on the Senate floor. “We should not be subsidizing some taxpayers at the expense of others.”

— This story was updated at 10:00 a.m. on April 23.