• by Wendy Davis  @wendyndavis, April 23, 2013

A proposed Internet tax bill will “hinder economic growth and job creation,” the Direct Marketing Association said Tuesday in a new letter to the Senate.

“The bill makes complex changes to the economy while leaving many important questions unanswered -- putting both businesses and consumers in harm’s way,” the DMA argues. “The Senate should hold states accountable before granting them expansive new tax powers and we respectfully request that you vote against any Internet sales tax proposal that does not include reasonable simplification requirements.”

If passed, the Marketplace Fairness Act (S. 743) will empower state governments to require out-of-state retailers with at least $1 million in sales revenue to collect tax from consumers. Supporters say the law will help brick-and-mortar stores to compete with online retailers.

Currently, brick-and-mortar stores must collect state sales tax, but out-of-state retailers need not do so unless they have an in-state presence, like a storefront. Consumers are supposed to self-report their online purchases and pay sales taxes, but observers are skeptical that it's done.

On Monday, the Senate voted 74-20 to close debate on the bill, paving the way for it to move to a vote. The law is supported by Amazon and a host of big retailers with brick-and-mortar presences, but opposed by eBay and other groups.

The DMA argues that the Senate shouldn't move forward without more extensive hearings. “They're moving with unnecessary haste,” says Ron Barnes, DMA vice president of state affairs. He says the DMA is concerned that the law lacks the kinds of provision that would make it easier for businesses to calculate state and local sales tax. “The bill doesn't require the necessary level of simplification in state sales tax collection and administration.”

He says that one specific problem with the bill is that it could subject companies to 46 separate audits, given that 45 states and District of Columbia impose a sales tax. Another is that the bill doesn't include a provision requiring states to harmonize their sales tax holidays.

Even if the Senate passes the bill, the House still has to consider the measure. Observers expect that the bill will meet with more resistance in the House, where Judiciary Committee Chairman Bob Goodlatte (R-Va.) has expressed concerns about the proposal.

In recent years, several states have passed laws requiring some online retailers to collect sales tax. Amazon and Overstock recently lost a challenge to a New York bill requiring Web companies collect sales tax if they use in-state affiliate marketers -- including online publishers that obtain commissions if visitors make purchases after clicking on ads.