WASHINGTON — The Senate is expected to easily pass an online sales tax bill Monday but it may face a larger hurdle in the Republican-controlled House, where many members view it as a new tax.
The Marketplace Fairness Act, S. 743, would require states to collect taxes from Internet retailers who don’t have a physical presence in the state. Currently, most online sales are tax-free, which supporters of the measure claim give them a big advantage over brick-and-mortar businesses.
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.
The bipartisan bill is expected to pass the Senate because it won approval of three test votes earlier this year and it has received support from the White House.
The National Retail Federation’s spokesman Stephen Schatz is optimistic about its prospects for passage in the House.
“The National Retail Federation is confident leading into tonight’s vote on the Marketplace Fairness Act,” he said. “We have come a long way. This issue has been brewing for more than 20 years. NRF looks forward to working with our bipartisan cosponsors in the U.S. House of Representatives, Reps Steve Womack, R-Ark., and Jackie Speier, D-Calif., to address any outstanding concerns in the House.”
State and local groups have been encouraging their membership in recent days to stay active with the online sales tax bill. On Friday, the National League of Cities sent an email to members urging them to contact their senators to thank them for their support of the Marketplace Fairness Act.
The NLC has also already been working with members in the House to encourage them to support the measure.
Supporters of the bill claim it’s not a new tax but rather one already owed and comes at a time when online sales have ballooned to nearly $225 billion according to the U.S. Department of Commerce.
The National Conference of State Legislatures, a longtime champion of the bill, estimates that states lost $23 billion as a result of not being able to collect sales tax revenue on remote sales.
Meanwhile, opponents of the measure have been actively lobbying against it. Anti-tax crusader Grover Norquist wrote to Sen. Mike Enzi, R-Wyo., one of the bill’s key sponsors, last week requesting some 16 questions be answered about the legislation.
Norquist pressed Enzi for answers as to why tribal lands are considered states under the bill and if there would be a negative impact on the financial services sector.
Similarly, eBay chief executive John Donahoe wrote in a blog on the company’s website Monday about his concerns that the bill would hurt small businesses.
“If the bill passes, small online businesses would have the same tax-compliance obligations and face the same enforcement risks as giant retailers, despite the fact that they are usually located in just one state,” Donahoe wrote. “There is no escaping the fact that the current bill gives tax collectors in every state unprecedented authority to threaten out-of-state small businesses with costly audits and unnecessary litigation.”
Donahoe argued that the bill would require small business merchants to collect sales taxes nationwide from more than 9,600 tax jurisdictions and those companies that sell items online would be subject to the same tax obligations are large retailers.
The measure would prohibit states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes.