Online Sales Tax Legislation Gains Support in Senate

State and local officials praised lawmakers for adding legislation to the fiscal year 2014 Senate budget resolution that would allow states to collect taxes from online retailers and catalogs.

In a largely symbolic move, the Senate voted late 75 to 24 late Friday to approve the Marketplace Fairness Act as an amendment to the budget resolution.

Brick-and-mortar businesses have long complained that they are at a disadvantage because they have to collect taxes while online retailers who don’t have a physical presence in a state are exempt. 

Earlier this year, a bipartisan group of Senators and Representatives introduced identical MFA bills in both chambers of Congress. Sens. Mike Enzi, R-Wyo., and Dick Durbin, D-Ill., spearheaded the effort in the Senate.

At stake is nearly $23 billion in uncollected sales taxes from out-of-state online retailers.

The Senate budget measure, the first passed in four years, is non-binding and the House chamber hasn’t voted on it yet. Still, it enables a spending blueprint should the Senate consider binding legislation later in the year. The budget resolution passed the Senate with a vote of 50 to 49.

“This strong bipartisan vote demonstrates that closing this unfair loophole that benefits online retailers over Main Street retailers is an issue on which Congress can come together,” the National Governors Association said in a statement. “This show of strength proves that leveling the playing field is an issue whose time has come.”

Both the National League of Cities and the National Retail Federation called the amendment’s passage a “big win for state and local governments” as well as for brick-and-mortar business owners.

Opponents of the measure came from key members of the Senate Finance Committee, which has jurisdiction over the issue, including its chairman Democrat Sen. Max Baucus of Montana.

Baucus, who is up for re-election in 2014 and represents one of five states that have no sales tax, voted against the amendment. He claimed the measure was not appropriate in the Senate budget resolution and would be a better fit in the context of comprehensive tax reform.

“This amendment isn’t just bad for Montana businesses, but small businesses all across America,” Baucus said on the Senate floor Thursday. “The amendment provides no protections for small businesses or protections from aggressive tax departments in other states.”

Finance Committee ranking member Sen. Orrin Hatch, R-Utah., also opposed the amendment calling it “controversial” and one that raises concerns with many stakeholders. Hatch said the amendment should be fully debated in the Finance Committee and not attached to the budget resolution.

Sen. Kelly Ayotte, R-N.H., who represents another state without a sales tax, also opposed the amendment. “This proposal would trample on the rights of New Hampshire, which has made the decision to not have a sales tax,” she said.

Ayotte said the bill was a new way for cash-strapped states looking to raise revenue to “plug budget holes.”

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