Senate Approves Online Sales Tax

online sales tax

Early yesterday evening, the United States Senate passed the so-called “Marketplace Fairness Act,” otherwise known as the Internet sales tax, which will turn small businesses and Internet-based retailers into tax collecting agents for 45 states and more than 9,600 local jurisdictions:

The Senate on Monday approved legislation that would for the first time allow states to collect billions of dollars in online sales tax revenue from out-of-state purchases.

The 69-27 vote is a major victory for retail groups and state governments, who for years have fought to close what they see as a loophole that allows as much as $23 billion in annual taxes from online sales to go uncollected.
Supporters said the overwhelming vote in the Senate will give the bill momentum as it heads to the House. They hope to get a bill to President Obama’s desk by the end of 2013.

Opponents, including some well-known conservative groups and the online retailer eBay, have vowed to keep up the fight in the House, where the path forward is less clear. They argue forcing small businesses to play tax collector for other states would be a huge burden, and that the bill would open retailers up to increased audits and compliance costs.

You can see how your Senators voted here. As you’ll see, Senate Republicans were split almost evenly on the tax, with opponents just barely edging out supporters. Only five Senate Democrats voted against the tax.

Among the groups to react to the tax hike was the Competitive Enterprise Institute. In a statement, Jesccia Melguin, a policy analyst at the organization, said passage of the Internet sales tax is “alarming.”

“It’s alarming the Senate would pass an unprecedented expansion of state tax authority without holding a single hearing on the legislation, said Melguin. “This legislation will raise compliance costs for online retailers, reduce healthy downward pressure on tax rates, tax online retailers for services they cannot use, increase consumer privacy concerns, remove political accountability for tax authorities and create new inequities between bricks-and-mortar and online businesses.”

“No doubt sales tax inequities between traditional and online retailers exist, but this legislation is a cure worse than the disease,” she continued. “As this issue moves to the House, representatives would be wise to put the legislation (H.R. 684) through regular order to address the harmful unintended consequences of the Marketplace Fairness Act.”

Andrew Moylan, a senior fellow at the R Street Institute who has written in opposition to the tax, expressed some optimism on his Facebook page. “[Sixty-nine] votes in favor of Marketplace Fairness Act. Six fewer than voted to move it along a few weeks ago, despite multi-million dollar lobbying effort from retailers,” he noted. “Majority of Republicans opposed it, meaning it’s likely that the only way the House can pass the bill is to violate the Hastert rule to do so.”

The “Hastert rule” is an uncodified rule in the House that requires a majority of the majority in order to bring a piece of legislation to the floor for a vote.

“Given the circumstances, I’d say I’m reasonably pleased,” he added.

Jacob Sullum explained that the Internet sales tax could create a nightmare for businesses. “The bill seeks to reduce the compliance burden by requiring each state to offer free software allowing merchants to calculate sales tax and file a single return for all taxing authorities within the state,” he wrote at Reason last week. “States could not audit a business more than once a year.”

“Still, that’s 46 returns (45 states with sales taxes plus the District of Columbia), which have to be filed monthly or quarterly, and 46 potential audits every year, not to mention all the misunderstandings, disputes, and hassles that fall short of an audit,” Sullum added. “You can start to see why the Supreme Court deemed collection of sales taxes from remote vendors an unconstitutional burden on interstate commerce.”

The bill now heads to the House of Representatives where it faces an uncertain future, as many conservatives are working to build momentum against what would be a tax hike in many of their states.

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