U.S. Senate Passes Test Vote on Online Sales Tax

While the online sales tax is called the 'Amazon Tax' it would extend to other Internet companies. (AP)

Supporters of a proposal that would allow states to collect sales taxes on online purchases won an important but symbolic victory in the Senate.

Senators voted 75-24 Friday night on the the “Marketplace Fairness Act” as a budget amendment to test its chances of succeeding as stand-alone legislation. Because of a 1992 Supreme Court case, companies are only required to charge customers for sales taxes in states where they have a physical presence.

Supporters say the proposal would allow states to collect revenue they are already owed, and give brick-and-mortar stores a fair shot at competing with online retailers. The current system, they say, forces the government to subsidize some businesses and consumers at the expense of others. The current proposal exempts smaller businesses that do less than $1 million in annual online or out-of-state sales.

The ability to collect taxes on Internet sales would have a positive but modest impact on state budgets, according to Fitch Ratings. The National Conference of State Legislatures estimates total annual revenue losses at $23 billion.

“If Congress fails to authorize states to collect tax on remote sales, and electronic commerce continues to grow, we are implicitly blessing a situation where states can be forced to raise other taxes—such as income or property taxes—to offset the growing loss of sales tax revenue,” Republican Senator Mike Enzi of Wyoming said in a Thursday speech on the Senate floor. “Do you want that to happen? I sure don’t.”

It remains to be seen how far that line of thinking will go in persuading skeptics to support the legislation, which opponents are painting as a tax increase.

Congress has been grappling with this issue for more than a decade. In the absence of federal movement, Amazon.com has been working out state-by-state deals. The online retail giant now collects sales tax from purchasers in nine states: Arizona, California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas and Washington.

In his floor speech, Enzi said the Supreme Court has left it to Congress to “solve this problem.”

He also pointed to a possible future benefit to the federal budget: “This will give states less of an excuse to come knocking on the federal door for handouts,” he said.


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