US senate passes Internet sales tax proposal

The nonbinding proposal is the first step toward allowing states to collect sales tax from e-commerce sellers

By , IDG News Service |  IT Management

The U.S. Senate has overwhelmingly passed a nonbinding proposal to allow states to collect sales tax on Internet sellers that have no presence within their borders.

The proposal was an amendment to a 2014 budget bill that the Senate debated Friday. It was pushed by Senators Mike Enzi, a Wyoming Republican, and Dick Durbin, an Illinois Democrat, and was designed to give backers a sense of whether they had enough votes to push forward with final legislation to impose an Internet sales tax.

The vote showed they have plenty of backing to overcome any filibuster seeking to block a final sales tax bill. Sixty votes are needed to overcome a filibuster, and senators voted 75-24 for the nonbinding resolution. The Enzi and Durbin amendment would allow the Senate Budget Committee to include the sales tax in the budget, providing it does not increase the federal deficit.

The budget amendment is an initial step toward allowing state and local governments to collect sales taxes from out-of-state retailers who sell more than US$1 million worth of products in a year over the Internet. Enzi and Durbin are the lead sponsors of the Marketplace Fairness Act, which would still have to pass through Congress before a tax is imposed.

Forty-six U.S. states now have sales taxes, but a 1992 ruling by the U.S. Supreme Court prohibited states from collecting sales tax from catalog sellers because of the burden it would place on the sellers. The court, however, left it up to Congress to allow states to collect sales taxes on remote sales if the states created a streamlined tax collection system.All states with sales taxes require Internet shoppers to report on their Internet purchases and pay taxes, but the rules are not well-known and few shoppers comply.

Supporters of the amendment said the current tax system isn't fair to brick-and-mortar businesses, which have to collect sales taxes from their local shoppers.

Senator Ron Wyden, an Oregon Democrat, argued against the amendment, saying it would encourage U.S. Internet sellers to move overseas, where it's tougher for states to collect sales taxes. "The Internet is now the shipping lane of the 21st century, and foreign retailers are going to get an advantage," he said.

But past arguments against the sales tax suggesting e-commerce was in its infancy and needed to be protected are no longer true, Durbin said. "You're asking for a safe haven here, an advantage over a lot of good small businesses in my state," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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