Online Sales Tax: Could We Get (Gasp) A Bipartisan Fix?

The Senate voted on a proposed online sales tax as a part of the Marketplace Fairness Act, a bill that requires internet retailers to collect sales tax from their consumers. The proposed legislation passed in the Senate 61 to 30 on April 25, and while there is speculation as to whether the House of Representatives will vote it down, this proposition would help small-business owners competing with the price advantages that huge online retailers maintain.

In 1992, the Supreme Court ruled that online retailers could evade sales tax collection on many transactions. Current law regarding online sales tax requires that only companies that are physically located in a state need to collect taxes.  Due to this, many online retailers are tax-free and thus have an unfair advantage over other businesses. This new legislation would force online retailers that sell $1 million or more annually in states where they are not situated in to collect a tax on those sales and redistribute it to state and local governments. Additionally, states would have to offer a free software that would automatically calculate the taxes on retail Web sites.

The opposition to this bill mainly comes from states that have no sales tax implemented.  Senator Kelly Ayotte (R-N.H.) asserted in a statement, “This measure…would put a serious burden on small business that rely on the internet to tap into growing markets, expand their operations, and create jobs.”

While Republicans in the federal government are known for their reluctance to impose any sort of new taxes, many Republican senators supported the bill along with Republican state governors who believe that this bill provides a tool to enforce current tax laws and could generate as much as $24 billion in tax revenue. 

Republican Senator Bob Corker of Tennessee stated, “This bill has nothing to do with imposing any kind of new tax or revenue generator…What this law does is allow states that already have laws on the books to carry out the implementation of those laws." Furthermore, Republican South Dakota Governor Dennis Daugaard claimed that this proposed legislation is a “matter of equity and fairness…The same people who are selling the same products should be paying the same taxes.”

During the initial vote in the Senate, 27 Republicans voted in favor of the bill. The final Senate vote will be held on May 6, and many pundits feel that it will gain more support. Afterwards, when the bill goes to the House of Representatives, it will likely go through the House Judiciary Committee. The chairman of the House Judiciary Committee, Representative Bob Goodlatte (R-Va.), claims he is concerned about the bill, but also said, “We recognize the fairness issue – certain items being taxed in certain circumstances, other items being not – is a problem for brick-and-mortar businesses, so we’re going to try and solve that.”