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US Senate approves Internet sales tax

Grant Gross | May 7, 2013
The U.S. Senate has voted to allow states to collect sales tax from online retailers, making it more difficult to buy tax-free products online.

The U.S. Senate has voted to allow states to collect sales tax from online retailers, making it more difficult to buy tax-free products online.

The Senate's vote of 69-27 for the Marketplace Fairness Act late Monday sends the bill to the House of Representatives, where it may face opposition from many antitax Republicans. U.S. President Barack Obama has voiced support for the bill, meaning he would sign it into law if the House passed it.

The bill would allow states to collect sales tax on large Internet sellers that have no presence within their borders, curtailing the ability of Internet shoppers to avoid sales tax. Now, online retailers only have to collect taxes in states where they have a physical presence, including retail stores and warehouses.

A bipartisan group of senators voted for the bill, with many Republicans, often against new taxes, voting for it.

Supporters argue the Internet sales tax would not be a new tax because the 45 states that levy sales taxes require residents to report their Internet purchases and pay taxes on them. More than 90 percent of people ignore the requirement or don't know about it, and states have not enforced those rules.

The bill would protect small Main Street businesses from unfair competition from Internet sellers and would allow states to collect sales tax that's already owed, said Senator Lamar Alexander, a Tennessee Republican. "This is common sense," he said. "This is fairness. This is states' rights."

Small brick-and-mortar businesses, because of state and local sales taxes, have to charge 5 percent to 10 percent more than Internet competitors, supporters argued.

But lawmakers shouldn't create new regulations for small online businesses when the U.S. economy is still sluggish, said Senator Ted Cruz, a Texas Republican. Lawmakers should focus on creating economic growth, he said.

"This bill goes in the exact opposite direction," Cruz said. "It would be a mistake to do anything to impinge the entrepreneurial growth of the Internet."

Savvy Internet shoppers would still be able to avoid paying sales taxes, because businesses with less than US$1 million in annual Internet sales would be exempt from collecting the taxes. More than 90 percent of Internet sellers would be exempt from collecting the taxes, according to bill supporters.

Lawmakers have been fighting for more than a decade to pass Internet sales tax legislation, and some businesses have called on Congress to fix the problem since a 1992 Supreme Court case that prohibited states from collecting sales tax from sellers that have no physical presence within their borders.

The court, however, left an opening for Congress to streamline sales tax collection and allow out-of-state sales tax collection.

 

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