After nearly one decade, the debate over online sales tax might be coming to an end.

On Thursday a bipartisan group of 53 Senators and Representatives introduced the Marketplace Fairness Act in both chambers, which would allow states to collect taxes from online purchases.

Currently, many online and catalog retailers do not collect the sales taxes that brick-and-mortar businesses collect.  It’s estimated that states lose approximately $23 billion each year from uncollected online sales tax.

The MFA was introduced by Sen. Dick Durbin, D-Ill., with his Republican counterparts Sens. Mike Enzi of Wyoming and Lamar Alexander of Tennessee.

In the past year alone, three different versions of an online sales tax bill were proposed in the House and Senate. They didn’t gain momentum and the most recent attempts to include a Senate version of the bill into year-end legislation were quashed.

“The Marketplace Fairness Act of 2013 eliminates the competitive advantage currently enjoyed by many Internet retailers at the expense of local businesses,” Durbin said at a press conference. “Every day we don’t act to pass this bill, we risk another small business closing its doors because they can no longer survive.”

When asked how this bill would be different, Durbin told reporters he spoke with Senate Majority Leader Harry Reid, D-Nev., and told him that he wants to bring the measure to the floor for a vote. The bill has also been referred to the Senate Finance Committee, Durbin said.

“This is gaining momentum and this is the year to do it,” Enzi said.

Rep. Steve Womack, R-Ark., the lead sponsor in the House said he was confident the bill would be passed this year. The bill now goes to the House Judiciary Committee, which is chaired by Republican Rep. Bob Goodlatte of Virginia. He has been lukewarm to the proposal in the past.

Still, the bill comes at a time when a host of other larger political issues need to be resolved — the sequester, continuing resolution, and debt ceiling — and its unclear how likely the measure will  proceed to a vote. 

The bill introduced on Thursday resolved the differences between other versions. The MFA provides states the authority to enforce existing sales and use tax laws, if they chose to do so, by adopting either the Streamlined Sales and Use Tax Agreement (SSUTA) or the Alternative Minimum Simplification Requirements.

The SSUTA allows any state that is not a member of the SSUTA to require remote retailers to collect state and local sales and use taxes. For states that are not SSUTA members and may require remote retailers to collect state and local sales and use taxes, they can adopt minimum simplification requirements.

The MFA also would prohibit states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes.

For years brick-and-mortar businesses have contended that online retailers have an unfair advantage over them because they don’t have to collect a sales tax when a consumer purchases a product online.

Under a 1992 Supreme Court ruling, Quill Corp. v. North Dakota, states can only require an out-of-state seller to collect taxes on residents if the seller has a physical presence in the state.

“This bill is less about taxation and more about marketplace fairness,” said Sen. Heidi Heitkamp, D-N.D., who was on the losing side of the Supreme Court ruling. “If you want to touch and feel the merchandise you go downtown to the store that sells it. If you think you want a better deal you go on the Internet and buy it. The difference in price is typically the sales tax.”

The National League of Cities, the National Retail Federation and other groups have aggressively lobbied Congress on the issue and welcomed the introduction of the bill Thursday.

“During these difficult economic times, and with the potential impacts of the looming sequestration, cities will need the Marketplace Fairness Act now more than ever,” said Marie Lopez Rogers, NLC president and mayor of Avondale, Ariz.. “This bill also gives back control to local governments over their own resources by removing another obstacle from Washington that prevents local governments from decided what is best for their community.”

While there has been growing support for an online sales tax, including from online retail giant Amazon, not everyone is on board.  eBay remains opposed to any such legislation, calling it a new tax and says the exemption should be higher than $1 million so as not to harm small businesses.

“Small business retailers using the Internet are innovators using technology to grow a business, create jobs in local communities, and serve consumers with competitive alternatives,” said Tod Cohen, vice president and deputy general counsel of Global Government Relations at eBay. Cohen said the legislation throws a new tax barrier in front of small businesses.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.