Online Sales-Tax Measure Advances in U.S. Senate

The U.S. Senate delayed until May 6 a final vote on a bill that would let states collect taxes on Internet and catalog sales.

Under the measure, states could reach outside their borders and impose sales taxes on retailers with at least $1 million in remote sales. States lose an estimated $23 billion a year in uncollected sales taxes.

The Senate vote will follow a week-long congressional recess. If the bill passes, it will face challenges in the Republican-controlled House of Representatives, which includes a higher percentage of members with anti-tax viewpoints than the Senate. The House committee chairman with jurisdiction over the bill said yesterday he’s looking for alternatives and hasn’t discussed the issue with House leaders.

“I have some concerns about the legislation, but we also recognize that the fairness issue of certain items being taxed in certain circumstances and other items not is a problem for brick-and-mortar businesses,” said Representative Bob Goodlatte, a Virginia Republican and chairman of the House Judiciary Committee. “We’re going to try to solve that.”

The bill has created a series of coalitions that cross the typical partisan lines on fiscal policy. In three earlier procedural votes, the proposal attracted at least 74 votes in the Senate. A vote yesterday to cut off debate succeeded, 63-30, with 60 votes needed to pass the procedural motion.

“We look forward to passing this landmark bill in 11 days and call on the House to stand up for America’s Main Street businesses with us,” Senator Richard Durbin of Illinois, the No. 2 Senate Democrat and a top proponent of the measure, said in a statement.

Retailers’ Support

Retailers such as Inc., Wal-Mart Stores Inc. and Best Buy Co. back the measure. Shopping mall owners, state governments and the Obama administration also support it.

“Today’s vote in the Senate is proof that the special treatment of big online businesses at the expense of retailers on Main Street will soon be a thing of the past,” Bill Hughes, senior vice president for government affairs at the Retail Industry Leaders Alliance, a group whose members include Target Corp., said in a statement.

Opponents include anti-tax groups such as Americans for Tax Reform as well as the online auction site EBay Inc. They have been joined by lawmakers from states without sales taxes and financial-services lobbying groups that say the bill might encourage states to impose transaction taxes.

Businesses could be subjected to multiple audits and increased compliance costs, according to critics of the proposal, who said they hope the delay in the Senate vote would allow time for constituents to object.

‘Far From Over’

“I’m glad the American people are going to have a chance to see this,” said Senator Ron Wyden, an Oregon Democrat who opposes the measure. “This is far from over.”

The Senate’s vote on the bill is scheduled for 5:30 p.m. on May 6, and a simple majority will suffice for passage. The only amendment being allowed was written by the measure’s supporters. It would relieve retailers of liability due to errors made by states.

Senate Majority Leader Harry Reid, a Nevada Democrat, had said he would require the Senate to work into the weekend to finish the bill before relenting yesterday and accepting the delay.

The legislation would in effect reverse a 1992 U.S. Supreme Court decision from the mail-order catalog era. The court prevented states from applying sales taxes to transactions with sellers that lacked a physical presence in their states.

That has given online retailers an advantage over businesses such as Wal-Mart and Williams-Sonoma Inc.

House members won’t be able to defend the status quo, which hurts local small businesses, said Representative Jackie Speier, a California Democrat and one of the measure’s leading House proponents.

Still, she said, getting a bill through the House won’t be easy. “We’re going to have to work it,” she said.

The bills addressing the issue are S. 743 and H.R. 684.

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