Senate Votes for Online Sales Tax, But Only Hypothetically

Photograph by David Paul Morris/Bloomberg

Last Friday, the possibility that retailers in all 50 states might soon begin collecting sales taxes on Internet purchases seemed to take a big step toward reality. Seventy-five U.S. Senators voted, in principle, in favor of a law called the Marketplace Fairness Act, a much-debated bill that is vigorously backed by a coalition of offline retailers such as Wal-Mart and Home Depot—and even has the tacit support of the Internet’s largest retailer,

Alas, for those who think retailers both online and offline should collect the same taxes, the vote sounded far more promising than it actually is. The senators did not approve the law but endorsed only a vague, non-binding 21-word summary of it, which is appended to a budget—a congressional resolution that doesn’t even become law. In other words, last week’s vote was little more than a public symbol—a bid by the law’s backers to muster public support and create the appearance of momentum.

Not only will the bill not become law, “it is unlikely to even be ‘conferenced’ with the U.S. House,” says Brian Bieron, senior director for global public policy at EBay. “It’s an indication of them continuing to have problems” turning the Main Street Fairness Act into actual law.

Those problems are varied and may be intractable. The bill has powerful opponents. Senators such as Max Baucus, chairman of the Senate Finance Committee and a Democrat from Montana, a state without any sales tax, does not want local businesses in his state to have to reckon with the complexity of collecting sales taxes from residents elsewhere in the country. Virginia Representative Bob Goodlatte, the Republican chairman of the House Judiciary Committee, has also said he sees the bill as overly complex and an undue burden for small retailers.

Then there’s the thorny issue of an exemption for small businesses—a hot-button topic that the non-binding resolution conveniently side-stepped. Marketplaces such as EBay are lobbying for such an exemption; they say that for mom-and-pop outfits selling hand-made crochets on the Web, complying with a complex quilt of sales tax laws in thousands of jurisdictions would be unnecessarily onerous. Making for odd bedfellows, companies like Walmart, Home Depot, and Amazon oppose any significant exemption, which would recast the balance of power in e-commerce toward smaller retailers who don’t have a significant array of physical stores or warehouses.

Finding common ground amid this complex network of intersecting interests could be difficult: Supporters believe they’ll need a filibuster-proof 60 votes in the Senate to pass the bill. In the vote last week, 25 Senators appeared staunchly opposed even to the vague, nonbinding summary. Senator Dick Durbin (D-Ill.) has been championed the legislation; spokesperson Christina Mulka says Durbin has not made a decision on how to proceed, but she boldly claims that with “the strong showing last week, we are confident it would pass again in the Senate as a stand-alone, or as part of a larger piece of legislation.”

In the meantime, states aren’t waiting for the federal government to act. By the end of the year, New Jersey will join California, New York, Illinois, and some dozen other states that have acted independently to require retailers to collect sales taxes on Internet purchases made within their borders.

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