Senators' effort to add Internet sales tax to defense bill falls short

Senators in favor of an online sales tax may try to move it forward in other ways

An effort by three U.S. senators to add an Internet sales tax amendment to a military spending bill has failed, at least for now.

Last week, Senators Dick Durbin, an Illinois Democrat, Mike Enzi, a Wyoming Republican, and Lamar Alexander, a Tennessee Republican, proposed a version of the Marketplace Fairness Act as an amendment to the National Defense Authorization Act, a large military spending bill.

But on Monday, the Senate voted to close debate on the defense bill and proceed toward a final vote without considering the sales tax amendment. The senators are unlikely to offer the amendment during final debate on the defense bill, a Senate staffer said.

More amendments to the defense bill could be offered Tuesday, before final passage of the bill.

Still, the trio of senators may try to find another bill to which they can add the sales tax amendment, a spokeswoman for Durbin said.

"Senator Durbin is working with his colleagues ... to look for any opportunity to move the bill," she said by email. "He is keeping all of his options open, whether that be to work for a vote on the bill as a stand-alone or part of a larger piece of legislation."

The Marketplace Fairness Act would allow the 46 U.S. states with sales taxes to require online sellers with no physical presence within their borders to collect the tax from their customers. Currently, due to a 1992 Supreme Court ruling, online retailers that have no physical presence in a state don't have to collect sales tax from residents who buy from them. As a result, the states receive no sales tax from those transactions.

Supporters of an online sales tax law say the current system is unfair to brick-and-mortar retailers, who have to tack on tax charges of close to 10 percent in some states, and to states, which lose billions of dollars in tax revenue owed to them.

Two tech trade groups, the Computer and Communications Industry Association (CCIA) and NetChoice, opposed the effort to add the sales tax bill to the defense legislation.

The sales tax proposal would "allow states to penalize the innovative e-commerce business model by targeting small online businesses as convenient sources (and collectors) of revenue," CCIA President and CEO Ed Black said in an email.

The proposed change in online tax collection is a significant step that "deserves more extensive consideration than attachment to the unrelated defense authorization bill," Black added.

The effort to add the sales tax amendment to the defense bill was just a "dry run," said Steve DelBianco, executive director of NetChoice. "If they can't attach this mess to a defense bill, they will try tomorrow to attach it to anything else that moves" in the last weeks of this congressional session, he added.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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