The Senate on Monday is poised to pass an Internet sales tax bill with strong bipartisan support, in spite of opposition from traditionally influential conservative groups and weak public backing.
The Marketplace Fairness Act, which easily cleared a set of in recent weeks, wouldn't technically impose any new taxes. Instead, it would give state governments the ability to collect Internet sales taxes from businesses headquartered outside of their respective state borders -- taxes that are technically already owed. Consumers are expected to declare those taxes on their state income tax returns but often don't.
Backers of the bill argue that out-of-state online retailers have an unfair advantage over brick-and-mortar stores, since they're not required to collect the sales tax owed on the products they sell, even if the state requests it. The National Conference of State Legislatures estimates states in 2012 lost more than $11 billion in sales tax revenue from online retailers based in other states. That money could make a huge difference in state budgets, especially as the economy continues to sputter back to life at a slow pace.
Support for the legislation hasn't fallen along the usual partisan divide. It was introduced by Sen. Mike Enzi, R-Wy., while its co-sponsors include conservatives like Sen. Lindsey Graham, R-S.C., and liberals like Elizabeth Warren, D-Mass.
Some of the bill's biggest detractors in the Senate come from states that don't collect sales taxes, like New Hampshire and Montana. "Montana businesses are not responsible for paying for the services and spending priorities in other states," Sen. Max Baucus, D-Mont., said on the Senate floor in March. "Montana businesses are not responsible for paying for fancy software to play tax collector for other states."
Conservative groups like the Heritage Foundation and Grover Norquist's Americans for Tax Reform also oppose the measure, arguing it's a burden on small online businesses.
That's what the measure's biggest corporate opponent eBay says: "These are very, very small businesses that employ less than 10 people, or even less than 20 people," eBay Vice President Tod Cohen. "And for them to take the amount of time and effort necessary to comply with all the laws, and more importantly to deal with the enforcement of those laws, puts them at a real disadvantage to their larger competitors."
The legislation exempts businesses making under $1 million in out-of-state sales annually, but eBay says that's not good enough. At an event last week, CEO John Donahoe said the exemption should, at the very least, apply to companies making under $10 million in out-of-state sales. "We're not against an Internet sales tax," Donahoe said. "But the Internet sales tax has to work."
Over in the Republican-led House, some GOP members have similarly suggested they support the general idea of the internet sales tax but think the Senate bill needs some work.
"I have some concern about the legislation," Rep. Bob Goodlatte, R-Va., told the New York Times. Goodlatte leads the House Judiciary Committee, which would have jurisdiction on the issue. "But we also recognize the fairness issue -- certain items being taxed in certain circumstances, other items being not -- is a problem for brick-and-mortar businesses, so we're going to try and solve that."
Conservative Rep. Paul Ryan, R-Wis., told the Hill that he does not support the Senate bill but supports the concept. "It's got to be done the right way," he said. "I think the legitimate concern is can it be used to do other forms of taxation or retroactive taxation? You have got to make sure it doesn't do that. I don't think the Senate bill is written in a tight enough way to do that."
A recent national poll from Quinnipiac University shows that the public isn't thrilled about the new tax collecting scheme: 56 percent of voters said they think items and services purchased on the internet should not be subject to state sales taxes, while just 37 percent said they should be.