Buyer beware: Days of tax-free online shopping may end

(CBS News) SAN FRANCISCO -- From the basement of an old San Francisco warehouse, Sean Peng's company Inspirare sells women's clothing on the internet. Peng collects sales tax only from buyers in California, where his business is based.

But now, Congress might make him collect taxes all over the country. The Senate passed a bill Monday night that would widely subject U.S. online shopping - for many a largely tax-free frontier - to state sales taxes by a vote of 69 to 27, the Associated Press reports, getting support from Republicans and Democrats alike.

Sean Peng's company Inspirare sells women's clothing on the internet.
Sean Peng's company Inspirare sells women's clothing on the internet.
CBS News

"If that happens, I'll probably spend all my day -- every single day -- trying to figure out the sales tax," Peng says.

About $11.4 billion went uncollected from internet sales last year for the 45 states that charge sales tax. Online shoppers are supposed to pay the sales taxes when they file state income taxes, but few do.

Illinois Sen. Dick Durbin is a sponsor of the bill.

"If you sell into a state like Illinois, you will collect our sales tax on sales to Illinoisans buying your products," Durbin, a Democrat, said on the Senate floor.

Will online sales tax plan hurt small businesses?

It will be up to the online retailers to send the taxes they collect to the states.

"We are requiring the states to provide software to the internet retailers free of charge, so that they can collect the sales tax as it's charged on each internet purchase," Durbin said.

Internet companies say tax collecting will become a huge burden, but brick-and-mortar retailers have complained for years that tax-free sales give online retailers an unfair advantage. The bill applies only to companies with more than $1 million in sales. Inspirare is not that big yet, but Peng hopes to grow.

Asked if he would be in internet retailing if he'd had to collect sales taxes across the country from the beginning, Peng says, "Seriously, I would reconsider."

The bill faces stiff opposition in the House. If it becomes law, online stores could begin collecting taxes early next year.

  • John Blackstone

    From his base in San Francisco, CBS News correspondent John Blackstone covers breaking stories throughout the West. That often means he is on the scene of wildfires, earthquakes, floods, hurricanes and rumbling volcanoes. He also reports on the high-tech industry in Silicon Valley and on social and economic trends that frequently begin in the West.