Internet Sales Tax Bill Gains Ground in Senate

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WASHINGTON -- It has been labeled a tax grab and a bureaucratic nightmare by conservative antitax activists, an infringement on states' rights and a federal encroachment on the almost-sacred ground of Internet commerce.

Yet legislation to help states force online retailers to collect sales taxes easily cleared its first procedural hurdle on Monday evening, and even its fiercest opponents are looking to the House for a last stand. The Senate voted 74-20 to take up the legislation for debate and amendment.

"I'm not above believing in miracles," said Dan Holler, a spokesman for Heritage Action, the activist arm of the conservative Heritage Foundation, which has made opposition to the Internet tax bill a "key vote" -- so far with little impact.

The bill, known as the Marketplace Fairness Act, is that rare piece of legislation that has turned Democrat against Democrat, Republican against Republican and business against business, while uniting states as different as New Hampshire, Montana and Oregon -- which have no sales taxes -- against virtually every other state.

An odd confluence of events has swung the political momentum to one side. Less than a week after the Senate could not muster 60 votes to expand gun background checks supported by a vast majority of voters, lawmakers from both parties are poised to steamroll opponents and greatly broaden the imposition of sales taxes on the Internet.

Under the bill, online retailers would collect an estimated $22 billion to $24 billion that now goes uncollected. A final vote is expected in the Senate by the end of the week. When the House will take up the issue is uncertain.

"We think this is inevitable, with states looking for revenue, with the growth of e-commerce," said Stephen Schatz, a spokesman for the National Retail Federation, which has said for years that brick-and-mortar retailers were at a competitive disadvantage against online giants.

"Inevitable" is not a word used often for legislation that Grover Norquist's Americans for Tax Reform mobilizes against and eBay rallies millions of its users to oppose, as they have with this bill. But sometimes the stars align. State and local governments are pleading to lawmakers to help fill their budget holes with legislation that technically does not raise a penny in federal taxes.

"What it means is a lot of money for states and localities," Senator Richard Durbin, Democrat of Illinois and one of the bill's champions, said on Monday.

Old-fashioned retailers are going bust, leaving towns marred by vast, empty storefronts. Those that remain complain of "showrooming," when shoppers inspect their wares, then leave the store to buy the same products on the Internet, finding lower prices and avoiding sales taxes.

Republicans including Senators Mike Enzi of Wyoming and Lamar Alexander of Tennessee are as adamantly in favor of the bill as Democrats.

Finally, Senate Democratic leaders needed a bill to move to quickly after gun legislation all but died last week, and the Internet tax bill was ready.

President Obama on Monday threw his support behind the bill, which the White House said "will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies."

The bill would allow states to require all Internet sellers to collect sales taxes for the state and local governments of the buyers. State governments would be required to provide software free to Internet retailers to calculate sales taxes. Online retailers with out-of-state sales of less than $1 million a year would be exempt.

Opponents predict a bookkeeping nightmare. Online retailers would have to keep track of more than 9,000 sales-tax regimes. Internet companies in states with no sales taxes -- Montana, New Hampshire, Oregon and Delaware -- would have to build a collection apparatus from scratch.

Senator Ron Wyden, Democrat of Oregon, called the legislation "a targeted strike against the Internet and a targeted strike against the digital economy."

Many of the largest Web retailers have already begun collecting sales taxes. Amazon.com has joined a vast constellation of brick-and-mortar retailers in collecting taxes, leaving eBay to fight an increasingly lonely battle. In March, the Senate held a test vote of sorts, a nonbinding amendment to the Senate budget that mirrored the Marketplace Fairness Act.

It passed 75 to 24 and won the votes of some of the Senate's most ardent conservative Republicans, including Senators Ron Johnson of Wisconsin and Tom Coburn of Oklahoma.

Shifting his company's position, eBay's chief executive, John J. Donahoe, has begun pressing for compromise, a $10 million exemption that would shield virtually all of eBay's sellers.

For many opponents, the fight is already shifting to the House, where an identical measure by Representative Steve Womack, Republican of Arkansas, has collected 55 co-sponsors from both parties. Mr. Womack said on Monday that he had held several meetings with Representative Robert W. Goodlatte, Republican of Virginia, chairman of the House Judiciary Committee, including one where Senators Enzi and Alexander joined the pitch.

For House members from both parties, Mr. Norquist's voice may be no match for the hometown retailers, Mr. Womack said.

"I'm just hopeful we can send a life vest to our traditional retailers," he said.

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This article originally appeared in The New York Times.


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