Over the strenuous opposition of eBay and allied advocacy
groups, the Senate on Monday passed a bill that would authorize
states to begin collecting sales taxes on purchases from
out-of-state Internet retailers.
The Marketplace Fairness Act, which the Senate approved by a
69-27 vote shortly before 7 p.m., would close what supporters
describe as a loophole in current tax law that gives online
sellers an unfair advantage over their physical counterparts.
"This bill is about fairness. It's about leveling the playing
field between the brick-and-mortar and online companies," Mike
Enzi (R-Wyo.), the bill's sponsor, said on the Senate floor.
The backers of the bill focused their remarks on debunking
misconceptions about the bill, including the notion that it
would impose a compulsory framework on states or create a new
tax.
"Congress is not forcing states to do anything. And if states
do act, they're collecting taxes already due by consumers," Enzi
said. "It's about collecting a tax that is already due."
Consumers who live in the 45 states with a sales tax are
currently required to report online purchases on which the tax
wasn't collected at the time of sale on their state income
returns, but most shoppers are either unaware of that obligation
or ignore it. As a result, state officials have complained that
billions of dollars in potential revenue go uncollected each
year.
The Marketplace Fairness Act has created something of a
fissure in the retail and ecommerce world, with Amazon and
groups like the National Retail Federation and Consumer
Electronics Association supporting the measure, while eBay stood
as one of the most vocal opponents, along with the anti-tax
group Americans for Tax Reform, the Information Technology
Industry Council and others.
"The retail industry - the largest private sector employer -
is rapidly changing and evolving," NRF Chairman Stephen Sadove
said in a statement responding to the bill's passage. "Retailers
compete for customers on many different levels, distribution
channels and fronts, including service and selection, but they
cannot compete on sales tax. Congress needs to address this
sales tax disparity and allow retailers to compete freely and
fairly. Retailers of all shapes, sizes and channels deserve a
level playing field."
Critics of the bill who concede that it would not technically
amount to a new tax still protest the measure on a variety of
other grounds, objecting to the complexity of state and local
tax codes that, they say, would create an undue burden on small
online sellers. They argue that the perverse effect of a bill
intended to put retail competitors on equal footing would be to
give an added advantage to large companies like Amazon that
possess ample resources to manage the accounting tasks.
"Today the Senate is voting whether to take a few more inches
off the little guy," said Sen. Ron Wyden, a Democrat from
Oregon, a state with no sales tax. "What you have is big
businesses being given the ability to force - force, mind you -
new regulations onto the startups, onto the small businesses."
The bill's authors countered that the Marketplace Fairness
Act both accounts for the complexity of state tax codes and
provides special treatment for small businesses in the form of
an exemption from the tax obligation for sellers with online or
remote sales of less than $1 million per year. In order for
states to be permitted to require online sellers to collect the
tax, they must either sign on to an interstate
tax-simplification framework or take other steps to harmonize
their state and local codes. Participating states would also be
required to make free software available to retailers to help
with the tax calculations.
eBay had been pressing for a small-seller exemption that
would set the revenue threshold at $10 million, while also
championing a minimum employee count to spare mom-and-pop
operations
"The contentious debate in the Senate shows that a lot more
work needs to be done to get the Internet sales tax issue right,
including ensuring that small businesses using the Internet are
protected from new burdens that harm their ability to compete
and grow," Brian Bieron, eBay's senior director of global public
policy, said in a statement. "eBay will continue to focus on
bringing greater balance to the legislation by protecting small
businesses with less than $10 million in sales or fewer than 50
employees."
Wyden and other members from non-sales tax states
additionally objected that the bill would strip away their
states' sovereignty by permitting outside taxing authorities to
require businesses in their state to collect and remit sales
taxes.
The bill now heads to the House, where companion legislation
has been introduced but faces an uncertain path forward. Bob
Goodlatte (R-Va.), the chairman of the House Judiciary
Committee, which plans to assert jurisdiction over the issue,
issued a statement Monday evening expressing disappointment in
the process by which the Marketplace Fairness Act passed the
Senate, where it bypassed the committee process, and claiming
that the bill's tax provisions are not "sufficiently
simplified." Goodlatte also voiced concern that businesses could
be subject to "aggressive state actions" and that the bill could
grant regulators extra-jurisdictional authority, echoing the
states-rights argument Wyden and other critics addressed on the
Senate floor.
"I am open to considering legislation concerning this topic
but these issues, along with others, would certainly have to be
addressed," Goodatte said. "The committee will also look at
alternatives that could enable states to collect sales tax
revenues without opening the door to aggressive state action
against out-of-state companies."