Internet Sales Tax Measure Faces House Battle

To the relief of bricks-and-mortar retailers across this unlevel-paying-field land, the Senate easily passed a bill yesterday requiring that online retailers collect state and local sales tax. But Christopher Gregory’s picture of Grover Norquist accompanying the story in the New York Times is a good indication of the uphill battle the legislation faces en route to passage by the House. Norquist’s Americans for Tax Reform, “which wields great influence in the House,” is among the “small government” groups that opposes the measure, the caption informs us. 

The Marketplace Fairness Act is, in fact, “a rarity in Washington these days, a significant tax measure that has split anti-tax groups in Washington from reliably Republican Main Street businesses beyond the capital,” observes Jonathan Weisman. “That divide has given the measure at least a chance to reach President Obama, who supports it.”



The Senate vote on the bill sponsored by Sens. Richard J. Durbin, an Illinois Democrat, and Mike Enzi, a Wyoming Republican, was 69-to-27. Despite “hundreds of retailers … flying to Washington this week to pressure House lawmakers,” as Weisman reports, Republicans who oppose it intend to prevent it from getting to the floor for a vote. 

“In the Senate, they went around the committee,” Norquist says in a Washington Times piece by Tim Devaney. “They rushed it through. You won’t find that in the House.”

“Technically,” as Devaney puts it, the legislation “would not create a new tax. Consumers are already supposed to pay sales taxes directly to the government when they shop online” by reporting their purchases on their state income tax forms. But most don’t now, do they? And that makes us, er … them, “tax cheats,” according to the lede of the AP’s Stephen Ohlemacher’s piece.

“This is a sales-and-use tax which is on the books,” Michael Kercheval, president and CEO of the International Council of Shopping Centers, tells Ohlemacher. "This isn't a tax issue. It's a tax collection issue.”

Different studies assign widely different values to the amount of money the states that collect sales taxes –- only Delaware, Montana, New Hampshire and Oregon do not -- are missing out on annually, but they’re all in the billions of dollars. USA Today, citing multiple sources, puts the amount at $11.4 billion in 2012 and provides a map indicating the revenue lost to each state. is among the large online retailers that support the measure. It “can afford to pay a small army to hassle with states who claim that [it] isn't paying enough tax,” as Megan McArdle points out on The Daily Beast. “Mom's Cupcake Bakery and Cable Store cannot.” 

That wasn’t always the case, as McArdle documents, but its “competitive advantage no longer derives from its tax-free status.” It derives from building more warehouses in more states closer to more customers who would pay more taxes.

But for the little guys and gals, “the act would overturn decades-long precedent and leave many small online sellers with the task of figuring out how to manage collecting and remitting sales tax to nearly every state,” Hadley Malcolm points out in USA Today

So eBay, with its legion of small retailers and just-plain-folk looking to clear their cupboards of such items as canned unicorn meat, “has been one of the loudest opponents of the legislation and vowed late Monday to keep lobbying to bring ‘greater balance to the legislation.’”

Businesses with less than $10 million in sales and fewer than 50 workers “should be protected from new burdens that harm their ability to compete and grow," Brian Bieron, e-Bay's senior director of global public policy tells Malcolm.

And eBay CEO John Donahoe tells NPR's “Morning Edition” that the law will squeeze out smaller sellers.

“So, I'm a small business in Pennsylvania and I now have the tax authorities from 5, 10, 15 states auditing me or sending me letters that I didn't do the calculation correctly,” he argues. “I may have to go fight for myself on behalf of that. That burden is the concern that we have that will impede their ability to thrive and ultimately to succeed and grow jobs.”

But supporters of the measure say the current tax disparity is turning some traditional stores into showrooms, where shoppers pick out items they like, then buy them on the Internet to avoid sales taxes,” according to the AP.

“It’s about the way commerce has changed in America,” says Durbin, the bill’s co-sponsor. “Bookstores, stores that sell running shoes, bicycles and appliances are at a distinct disadvantage. They’ve become showrooms.”

Who says our politicians aren’t on top of the news?

2 comments about "Internet Sales Tax Measure Faces House Battle".
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  1. Neil Mahoney from Mahoney/Marketing, May 7, 2013 at 2:05 p.m.

    A tax on the internet, retail sales or otherwise, is only a matter of time. As the sage said, "The only thing certain is death and taxes. Neil Mahoney

  2. Paula Lynn from Who Else Unlimited, May 8, 2013 at 8:09 p.m.

    Isn't where you purchase an item/service is where and what tax you pay not where you live ? When shipping gets involved, it gets stickier, so why not just go back to where the sale is ? Oh, that's right. Every business would just incorporate in Delaware and avoid ....

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