The Senate on Friday voted to give states greater power to collect sales taxes on purchases from sites like eBay and Amazon.
Sens. Dick Durbin, Illinois Democrat, and Mike Enzi, Wyoming Republican, tested the support for their bipartisan "Marketplace Fairness Act" with an amendment to the budget resolution, which passed 75-24, during Friday's marathon voting session on the Senate floor.
In what has come to be known as the "Amazon tax," the measure would require online retailers to collect sales tax, even on out-of-state purchases.
Online sales taxes are not new, but thus far, Internet retailers have been exempt from collecting it, much to the chagrin of their brick-and-mortar peers who enjoy no such exemption. Customers who shop online are supposed to pay the sales tax directly to the government, but many don't realize this, so it goes uncollected.
Traditional retailers have lobbied strongly for the bill, because they say it would level the playing field, and state governments are backing it because they eye the revenues such taxes would bring in.
But opponents argue that states should not have the power to dictate to businesses outside of their jurisdiction, and that such taxes would pose a major crimp on Internet sales.
"As the retail industry evolves and digital commerce becomes a more prominent portion of total retail sales, it is critical that the tax laws not discriminate between similar businesses based on how their products are distributed," wrote David French, senior vice president of government relations at the National Retail Federation, in a letter to the Senate.
The Enzi-Durbin amendment, which has 19 co-sponsors, is a non-binding move that would nevertheless test the depth of support for the law on e-retailing taxes, which could be up for a vote later in the year.
The sponsors of the bill may opt to skip the committee process and go straight to the Senate floor for a vote, if they receive at least 60 votes during Friday's budget amendment vote.
But Senate Finance Committee Chairman Max Baucus, Montana Democrat, has said he wants any floor legislation to go through his committee first.
"I think this amendment is not yet ready," Mr. Baucus said Thursday during debate of the amendment on the Senate floor. "It's premature."
Opponents argue that businesses should not be subject to tax laws in other states.
"I cannot think of an instance where this Congress has legislated that a state can go into another state and enforce taxation laws," Mr. Baucus said. "This is revolutionary."
Critics say the tax could also become a source of confusion for online businesses. There are nearly 10,000 jurisdictions around the country that would be eligible to require these Internet companies to collect taxes, each with its own tax code with different rates for different items. Online businesses say they face heavy administrative costs keeping up with all the variations on rates.
State governments have also come out in support of collecting Internet sales taxes in recent years. The National Retail Federation estimates that states lose a combined $24 billion each year from uncollected sales taxes on Internet purchases.
Sen. Kelly Ayotte, New Hampshire Republican, said that is the crux of the debate: "Officials in cash-strapped states across the country [are] looking for new ways to plug their budget holes."
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