Sen. Jeanne Shaheen, D-N.H., expressed opposition to federal legislation that would require small businesses operating on the Internet to collect a sales tax.

WASHINGTON – Three Senate Democrats representing states without sales taxes told Senate leaders they oppose federal legislation that would impose an Internet tax sales tax on their small businesses.

In a two-page letter sent April 22 to Senate Majority Leader Mitch McConnell, R-Ky., and Senate Minority Leader Harry Reid, D-Nev., the three -- Sens. Jeanne Shaheen, D-N.H.; Jon Tester, D-Mont.; and Jeff Merkley, D-Ore. – warned that a federal Internet sales tax would be a “disaster” for small companies in their states and vowed to resist any efforts to act on legislation this year.

Though they said online sales have helped their states’ small businesses expand, the Senators said that Internet sales tax legislation would stunt that growth and lead to what they called “abusive audits” from other states.

The Senators said they will “strongly oppose any bill that will impose undue collection burdens on our small businesses and consumers,” and “will object to any effort to advance such legislation in the Senate this year.”

McConnell said in February that a vote on such legislation would take place sometime in 2016.

“Online retailers with no experience collecting a sales tax would face daunting red tape and bureaucratic hurdles dealing with thousands of tax jurisdictions across the country,” the letter read. “This would be a disaster for these companies, which lack the time and resources to collect sales taxes for other states. Our states will face these burdens without seeing any benefits from Internet sales tax legislation.”

In a separate release, Shaheen said Internet sales tax legislation would force small businesses in her state to collect sales taxes for 46 states and 9,600 taxing jurisdictions. Besides New Hampshire, Montana, and Oregon, Alaska, Delaware and Hawaii also do not have a sales tax.

The Senators’ letter comes ten months after the Permanent Internet Tax Freedom Act (H.R. 235) was approved by the House last June. That bill, introduced by Rep. Bob Goodlatte, R-Va., would create a permanent ban on state and local taxation on Internet sales. It is pending before the Senate Finance committee.

The three Senators said they disagreed that the Permanent ITFA could lead to the passage of an Internet sales tax bill, as some have suggested.

Proposed online sales tax legislation has been a much-discussed topic in Congress in recent years, with little to no headway made.

Goodlatte stalled the Marketplace Fairness Act (S. 698) after it was approved by the Senate in May 2013. That bill, which Sen. Mike Enzi, R-Wyo., re-introduced in March 2015, would give states the power to require sales tax collection from online retailers. The bill would base sales tax on the buyer’s location. It is pending before the Senate Finance Committee but is not expected to move forward. The Remote Transactions Parity Act (H.R. 2775), introduced by Rep. Jason Chaffetz, R-Utah, last June, would allow states to collect sales tax on purchases from Internet retailers outside their borders.

Chaffetz’s bill is pending before the House Judiciary Committee’s regulatory reform, commercial and antitrust law subcommittee, which has jurisdiction over the matter because of the interstate commerce implications.

It has received support from state and local government groups. Under Chaffetz’s bill, remote sellers with annual gross receipts of less than $5 million cannot be audited by a state unless there is reasonable suspicion of intentional misrepresentation or fraud.

Goodlatte, on the other hand, introduced a draft Online Sales Simplification Act last year, which would require businesses to pay collected taxes to the state they are located in. His draft measure, which is opposed by state and local government groups, would eliminate the need to determine an individual customer tax rate for each purchase.

A coalition of 26 business organizations including the U.S. Chamber of Congress and the National Retail Federation penned their own letter to Goodlatte in March urging the House Judiciary Committee to vote on uniform federal Internet sales tax legislation. Those groups were worried that states will continue to adopt their own measures should Congress not act swiftly.

In response to the standstill on federal legislation, five states have passed their own remote seller tax laws, which the 26 business groups said create privacy concerns and an “unnecessary administrative burden” for online retailers.

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.