On Monday, the Senate voted to pass a bill that would give each state the power to enforce its sales tax laws against online retailers.
The Senate vote in favor of what is known formally as the Marketplace Fairness Act was 69 to 27. The bill now moves to the House of Representatives, where it is expected to face various challenges against it moving forward.
The online sales tax bill has seen support from large brick-and-mortar retailers including Wal-Mart and Best Buy, online retailers including Amazon, and state legislatures, who are looking to the collection of online sales tax as a way to close the budget shortfalls faced by many states.
Amazon is specifically looking for passage of such a bill as it will simplify the various state tax measures enacted against only Amazon because of its immense size.
Opposition to Internet sales tax from the Republican-controlled House of Representatives is based on concerns with how complex the bill is, the impact it will have on small businesses, and opposition to what is effectively new taxes.
“Call me a conservative, but I believe the right approach to tax fairness is to reduce rates, not force higher rates onto others,” noted Tom Graves, a House Republican from Georgia.
An Internet sales tax is also not without opposition from merchants, including eBay and Overstock.com, as well as states that do not have sales tax. These states include Montana, New Hampshire, and Oregon.
To date states have generally been unable to force online retailers to collect sales tax unless the retailers had a physical presence in a given state. A physical presence can include corporate offices, warehouse or distribution centers, and retail stores.
Consumers are supposed to remit taxes related to online purchases on their own, in many cases as a part of filing state income tax returns, but few consumers do so. The Internal Revenue Service has not taken steps to enforce collection of sales tax.
Supporters of the bill say that Internet sales tax is not a new tax because in the vast majority of states consumers should already be remitting those tax dollars to the government, and this bill is simply taking the necessary step to enforce collection of those taxes.
Opposition to the bill has also come in the form of concerns about how it would affect the overall economy, which is still recovering from the sluggishness it has experienced over the past few years.
“This bill goes in the exact opposite direction,” noted Senator Ted Cruz of Texas. “It would be a mistake to do anything to impinge the entrepreneurial growth of the Internet.”
The bill would allow states to require collection of online sales tax from online retailers even when they do not have a physical presence in a state. However, the bill does not require that states implement sales tax against online retailers. In addition, the bill cannot be enforced against retailers who have annual sales of less than $1 million in a given state.
Because of the various opposition against the online sales tax introduced in the bill and in spite of the Senate voting to pass the measure, experts believe it is unlikely that the bill will make it through the House during 2013.
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.