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Senators introduce Internet sales tax bill

The legislation would allow states to collect sales tax from out-of-state online sellers

Four U.S. senators have introduced legislation that would allow states to collect taxes on Internet sales, even when the seller does not have a physical presence in the taxing state.

The Marketplace Fairness Act, introduced Wednesday, would allow states that sign on to one of two tax simplification plans to collect sales taxes from Web-based sellers, reversing a widespread practice of no Internet sales taxes since the beginning of the commercial Web.

All states with sales taxes require residents who buy products from remote sellers to keep track of their purchases and pay sales taxes, but those rules are widely ignored. By some estimates, close to US$4 billion in Internet sales taxes go uncollected every year.

Under a 1992 ruling by the U.S. Supreme Court addressing catalog sales, states are now allowed to collect sales taxes from sellers with no physical presence within their borders.

The new bill would allow states to collect sales taxes from remote sellers if they sign on to the Streamlined Sales and Use Tax Agreement (SSUTA), a 12-year-old effort to meet the Supreme Court's requirements to simplify sales tax collection, or if they adopt a so-called alternative tax simplification plan.

Sponsors of the bill, similar to past efforts to allow Internet sales taxes, said the current system is unfair to small bricks-and-mortar businesses that have to charge sales tax to local customers. The legislation does not create new taxes, the senators said.

"Most small business people don't want a government handout," Senator Dick Durbin, an Illinois Democrat and cosponsor, said in a statement. "They don't want special treatment. They just want to be able to compete fairly against other businesses."

The bill allows states to decide whether they should collect Internet sales taxes, added Senator Mike Enzi, a Wyoming Republican. "This bill empowers states to make the decision themselves," he said in a statement. "If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in store, they can. If they want to keep things the way they are, it's a state's choice."

Senator Lamar Alexander, a Tennessee Republican, is also a sponsor of the legislation.

Durbin is a cosponsor of a similar bill, the Main Street Fairness Act, introduced in July. Similar bills in recent sessions of Congress have failed to pass.

NetChoice, an e-commerce trade group, and eBay voiced opposition to the new bill.

"This proposal is too late for Halloween but it still scares the heck out of small online businesses," said Steve DelBianco, executive director of NetChoice. "What's scary is that this bill is a bald-faced tax increase for businesses nationwide who'd have to start paying states where they have no physical presence. Some businesses may figure out how to pass that tax along to customers, but it's still a new tax that's due from the business."

The bill will "unbalance the playing field between giant retailers and small business competitors," Tod Cohen, eBay's vice president for government relations, said in a statement.

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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