Online shoppers who avoided state sales taxes would pay more for their
purchases, and states stand to add billions to their coffers because of a
landmark online sales tax collection bill the Senate passed Monday.
The bill, which still must pass the House, is backed by large retailers that already collect taxes and claim they are at a price disadvantage because many online-only retailers don't charge sales tax.
On the other side are small online merchants who say they will be hurt by the administrative costs of complying with different laws of the 45 states with sales taxes.
Online shoppers would pay 5% to 10% on purchases depending on what state they live in. States face an estimated windfall of more than $11 billion in taxes on more than $200 billion a year in sales, according to research firm Forrester and the University of Tennessee.
House Republicans could face opposition from the Tea Party and other groups that are against tax hikes.
The Marketplace Fairness Act, which passed the Senate 69-27, allows states to require online retailers to collect sales tax. Currently, merchants with a physical presence in a state must collect tax, based on a 1992 Supreme Court decision that said it was too difficult for out-of-state sellers to comply with numerous state laws and jurisdictions.
As online shopping has grown and software makes it easier to comply with state tax laws, backers of the act say the court argument is now moot.
"This is a discrimination against brick-and-mortar retailers, and it needs to be fixed," said David French, a vice president at the National Retail Federation. "(Online merchants) shouldn't get to play by special rules."
The bill would require states to simplify tax codes and provide free software to retailers to help calculate sales tax. But many small online sellers say that even so, collecting tax for 45 states would be a burden.
Nancy Mashragi, who sells refurbished electronics on Ebay and does about $3 million a year in sales, says she may have to consider downsizing and reducing her sales so she's within the $1 million small-seller exemption. Merchants with less than $1 million in out-of-state sales a year would not have to collect sales tax.
"You need manpower to overlook this," says Mashragi, who employs eight people as well as her husband. "It looks like we would need to hire somebody just to do our taxes." She adds that it's already "a challenge for us to employ this many people and keep our heads above water."
Ebay wants the small-seller exemption raised to businesses with less than $10 million in out-of-state sales or fewer than 50 employees.
"It raises the price of their products ... and big retailers who are supporting this bill, they know that," says Brian Bieron, a senior director at Ebay. "They want to make it harder for a small business to grow into a big, robust competitor."
Giants such as Walmart and Amazon, both in favor of the bill, have stores or warehouses in nearly every state, so they already collect tax on most online purchases.
Consumer groups have stayed out of the debate, and the effect on shopper behavior is expected to be muted.
"I don't think it's going to deter people from shopping online," says Lisa Lee Freeman, editor in chief of ShopSmart magazine, which is published by Consumer Reports. "Shopping online is just too convenient."
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