Senate Takes Step Closer to Imposing Sales Tax on All Online Vendors

With a vote by the United State Senate on Monday, lawmakers are a step closing to putting legislation in place that would allow every state to impose sales tax on most online retailers.

The measure is designed to replace current laws that in most cases only permit a state to collect sales tax from a sale if the retailer has a physical presence in the state.  As many large online retailers have a physical presence in only one or a few states but ship nationwide, those retailers are effectively able to operate sales tax free across most of the nation.

Under the measure voted on by the Senate, sales tax for online retailers would vary by state.  The sales tax collected under the law would go to each state where the sale occurred.

The Senate voted 74 to 20 to move forward on discussion of the bill.  The Senate could pass a final version of the bill by as early as the end of this week.

Both supporters and opponents of the bill are quick to point out the cases for their positions.  Supporters of the bill note that imposing sales tax against online retailers is fair and necessary to allow local brick and mortar retailers to compete on a level playing field, as online retailers can currently undercut local retailer prices by the amount of sales tax.

Opponents of the bill say the measure puts on undue amount of burden on retailers to maintain the huge number of differing sales tax rates across the nation, especially small retailers.  The bill exempts retailers with less than $1 million in annual online sales from collecting sales tax.

“I believe it is important to level the playing field for all retailers,” noted Senator Mike Enzi of Wyoming, the bill’s main sponsor.  “We should not be subsidizing some taxpayers at the expense of others.”

Most states technically require that individuals submit unpaid sale tax as a part of filing state income tax returns.  However, most of those states take no actions to ensure individuals properly report and pay that money.

While President Obama supports the passage of a measure to impose sales tax against online retailers, it is unclear if the measure will pass the House.  Many Republican members of the House have expressed reservations about passing the measure as it would amount to a tax increase for those who shop online.

A majority of both Republican and Democrat governors are in support of the measure, since it would help local businesses within their jurisdictions.  A measure to impose online sales tax has gained more support as more businesses feel the hit of the recession.

Large online retailers are split on the matter.  Whereas is in support of the measure because it would provide a simple approach to imposing sales tax for online retailers across the nation, eBay is against the measure because of the impact that would be felt by small businesses.

But the measure is taking some steps to assist retailers in complying, requiring that each state establish a single entity to which a retailer could remit all sales tax collected in that state and provide software to calculate sales tax based on the address of the buyer.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.