A group of U.S. senators have offered a nonbinding amendment to a fiscal year 2014 budget resolution allowing states to collect sales taxes on Internet sales and end the tax-free shopping that many shoppers enjoy online.
The amendment, offered Thursday by Senators Mike Enzi, a Wyoming Republican, Dick Durbin, an Illinois Democrat, and others, would establish a reserve fund in the federal government's budget allowing state and local governments to collect sales taxes from those who sell more than US$1 million worth of products in a year over the Internet.
[ BACKGROUND: Trade group: Expect big push for online sales tax ]
Supporters of the nonbinding amendment, which mirrors the Marketplace Fairness Act from Enzi and Durbin, argued the current tax system disadvantages local businesses that must collect sales tax from their shoppers.
If the amendment passes, it may prompt the Senate leadership to move forward with a separate online sales tax collection bill. The Senate is expected to vote on the budget resolution in the coming days.
"Let's stand up for retailers across America," Durbin said on the Senate floor. "Let's say to the Internet retailers, 'we're glad you're doing well, but play by the same rules.'"
In a growing number of cases, shoppers check out products at local stores, then order the product online to save on sales taxes, supporters of the amendment said.
Congress needs to "level the playing field" between online retailers and other bricks-and-mortar counterparts, Enzi said. "Now is the time for Congress to act," he said.
Forty-six U.S. states now have sales taxes, but a 1992 ruling by the U.S. Supreme Court prohibited states from collecting sales tax from catalog sellers because of the burden it would place on the sellers. The court, however, left it up to Congress to allow states to collect sales taxes on remote sales if states created a streamlined tax collection system.
All states with sales taxes require Internet shoppers to report on their Internet purchases and pay taxes, but the rules are not well known, and few shoppers comply.
Opponents of online sales tax proposals, which some lawmakers have advocated for over a decade, said a budget bill isn't the correct vehicle to push an Internet sales tax.
An online sales tax would allow states to force retailers located in other jurisdictions to collect their taxes, said Senator Max Baucus, a Montana Democrat. "Not only is this complicated, its revolutionary," he said.
Instead of attaching the proposal to a budget resolution, the Senate should debate the proposal as part of comprehensive tax reform, Baucus said.
Online sales tax bills have been introduced in the Senate going back 14 years and there's been plenty of debate about them, said Senate Lamar Alexander, a Tennessee Republican. The amendment is about states' rights to collect taxes, he said.
States miss out on about $23 billion a year in uncollected taxes in the current system, supporters of the amendment said.
Senator Kelly Ayotte, a New Hampshire Republican, said the Marketplace Fairness Act is misnamed. The amendment should be called the "Internet Tax Collection Act," she said. "This is another attempt to turn our businesses into tax collectors." Businesses in New Hampshire, which doesn't have a sales tax, would be forced to collect sales tax for other states, she said.
The We R Here Coalition, representing businesses opposed to an online sales tax, criticized the amendment's sponsors for adding it to the budget resolution.
"Here they go again -- another attempt by senators to sneak through an increase to the burdens on small online retailers, turning them into tax collectors instead of job creators," Phil Bond, executive director of the coalition, said in a statement. "There are good reasons this policy hasn't been considered in the U.S. Senate for over a decade: Taxpayers don't like it, it turns the Internet into a tax collection platform."
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 email@example.com.