Senate Delays Action on Internet Sales Tax Bill

Senate Majority Leader Harry Reid says senators have reached a deal to delay voting on a bill to tax internet sales until after senators return from a weeklong vacation.

Reid says the Senate vote on passage of the bill would be May 6.

A handful of senators from states without sales taxes were blocking the bill, which has widespread bipartisan support in the Senate.

The bill would empower states to require online retailers to collect state and local sales taxes for purchases made over the internet. Under the bill, the sales taxes would be sent to the states where a shopper lives.

Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving internet retailers an advantage over brick-and-mortar stores.

Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states. Opponents say the bill would impose complicated regulations on retailers and doesn’t have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.

Many of the nation’s governors – Republicans and Democrats – have been lobbying the federal government for years for the authority to collect sales taxes from online sales.

The issue is getting bigger for states as more people make purchases online. Last year, internet sales in the U.S. totaled $226 billion, up nearly 16 percent from the previous year, according to Commerce Department estimates.

The National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn’t collect taxes on out-of-state sales.

The bill pits brick-and-mortar stores like Wal-Mart against online services such as eBay. The National Retail Federation supports it. And Amazon.com, which initially fought efforts in some states to make it collect sales taxes, supports it, too.

The bill also gets support from many Republicans who have pledged not to increase taxes. The bill’s main sponsor is Sen. Mike Enzi, a conservative Republican from Wyoming. He is working closely with Sen. Dick Durbin, a liberal Democrat from Illinois.

Enzi and Durbin say the bill doesn’t raise taxes. Instead, they say, it gives states a mechanism to enforce current taxes.

In many states, shoppers are required to pay unpaid sales taxes when they file state tax returns. But governors complain that few people comply.

Sen. Chris Coons, D-Del., said he supports the bill in part because tax-free internet sales are eating into sales by Delaware retailers.

“In our region, we’ve long benefited from significant commercial sales from residents of Maryland, of New Jersey, Pennsylvania and elsewhere, who come to Delaware to shop because we’re a tax-free state,” Coons said. “Over time, the benefit of that has eroded as folks discovered that they could buy the same things online without paying sales tax from home.”

He noted that the bill would not require anyone from Delaware to pay sales taxes.