Senate Expected to Pass Internet Sales Tax Bill

Internet sales tax Annette Shaff / Shutterstock.com[/caption]

The United States Senate is expected to approve a bill that, if signed into law, will give states the authority to tax online sales. A procedural vote for the “Marketplace Fairness Act” is scheduled for Monday evening.

Senator Dick Durbin (D-IL), one of the sponsors of the legislation, argues the bill is something everyone can benefit from.

“The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses,” Sen. Durbin said in an statement.

Last month, the Senate passed a non-binding resolution amendment in support of states passing their own Internet sales tax laws, 75-24. The broad support for the measure did not have any legal implications, but it was a good indicator of how well the Marketplace Fairness Act would do.

Several major retailers nationwide support an online sales tax because they believe it would level the playing field. The National Retail Federation and Retail Industry Leaders Association, an organization that represents many brick-and-mortar stores like Best Buy, Wal-Mart, and Target, argues online stores have an unfair advantage in the retail market.

Under current law, states can only collect sales taxes on online stores that have a physical presence in the state. The Marketplace Fairness Act would give states a broader authority to tax Internet sales, but would exempt small businesses that make less than $1 million in out-of-state sales.

Opponents of the bill argue from the position of states’ rights, specifically a state’s right not to have a sales tax. Senators Max Baucus (MT), Kelly Ayotte (R-NH), and Ron Wyden (R-OR) are among the opposition and represent states that do not have a sales tax.

“This is a clear infringement on states’ rights that we cannot stand for,” Sen. Baucus stated.

Sen. Mike Enzi, along with other supporters of the Marketplace Fairness Act, counter this argument by saying the bill actually protects states’ rights since states are not required to impose an online sales tax and if they do, they can lower the rates of other state taxes.

For some, the focus is on the potential revenue increase for state and local governments if states should choose to implement an online sales tax. According to Sen. Enzi, states collectively lose approximately $23 billion a year because they do not tax online purchases.

While the Marketplace Fairness Act is expected to sail through the Senate, it will likely have a tougher time in the U.S. House. Some Republicans in the House have expressed concern that the bill could open the door for states to tax and regulate beyond their boarders.