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Senators stall vote on Internet sales tax for now

Supporters of the legislation still hope to vote in the Senate Friday or Saturday

A handful of lawmakers have stalled the U.S. Senate from voting on legislation that would require large Internet and catalog sellers to collect state sales taxes from their customers.

Supporters of the Marketplace Fairness Act still hope to vote on the bill on Friday or Saturday. The bill would allow states to collect sales tax on large Internet sellers that have no presence within their borders, curtailing the ability of Internet shoppers to avoid sales tax. Businesses with less than US$1 million in annual Internet sales would be exempt from collecting the sales taxes.

A small group of senators, including Democrats Ron Wyden of Oregon and Max Baucus of Montana, have held up the legislation this week by objecting to any amendments offered on the Senate floor. The objections have brought the Senate to a standstill, with supporters of the bill unwilling to move on to other legislation, and opponents unwilling to allow amendments.

Congress shouldn't force Internet sellers to collect sales tax for states where they have no voice or operations, Wyden argued.

The bill requires that the states provide free tax collection software to Internet sellers, but implementation would still be costly to many small sellers, Wyden said. The bill would also expose Internet sellers to tax audits from more than 40 states, opponents said.

"This debate is about the little guy," Wyden said.

Supporters of the Marketplace Fairness Act say the current situation is unfair to bricks-and-mortar retailers, who have to charge a 5 to 10 percent sales tax on their products, while many Internet sellers do not. States with sales taxes are missing out on an estimated $23 billion in tax revenue because a 1992 Supreme Court ruling prohibits states from collecting sales tax from sellers that have no physical presence within their borders.

The current situation hurts small businesses in Massachusetts, said Senator William "Mo" Cowan, a Massachusetts Democrat. "Billions in sales are sent elsewhere," he said. The Senate should pass the bill because "a sale is a sale is a sale," he added. "Outsiders should not be treated better than insiders."

Lawmakers have been fighting for more than a decade to pass Internet sales tax legislation, and some businesses have called on Congress to fix the problem since the 1992 Supreme Court case, supporters said. "These Main Street business have been waiting for over 20 years for equality, for fairness," said Senator Heidi Heitkamp, a North Dakota Democrat involved in the court case while serving as the state's tax commissioner.

Baucus, chairman of the Senate Finance Committee, called on the Senate leadership to allow his committee to debate and amend the bill. The bill should go to the committee because it "has so many problems," he said Thursday.

But supporters said Baucus has long bottled up Internet sales tax bills in his committee. The Finance Committee has "become a dungeon" for the bill, said Senator Lamar Alexander, a Tennessee Republican.

Only five states, including Oregon and Montana, do not levy sales taxes. Residents of the other states are required to report purchases they make from websites and catalogs and pay sales tax. Many U.S. residents don't know of the requirements to pay tax sales taxes on Internet purchases, and the state requirements are largely ignored.

When the bill comes to a final vote in the full Senate, it is likely to pass. The Senate on Monday voted 74-20 to close debate and move to a final vote on the bill. The legislation faces an uphill battle in the House of Representatives, where tax-adverse Republicans hold the majority.

The bill has been the subject of a huge lobbying effort on both sides in recent days. Among the groups supporting the Marketplace Fairness Act are the Consumer Electronics Association, the National Retail Federation, the Retail Industry Leaders Association, Amazon.com, Best Buy, the American Booksellers Association and the Alliance for Main Street Fairness.

Opposing the bill are several trade groups and Internet companies, including TechAmerica, the Financial Services Roundtable, the Competitive Enterprise Institute, eBay, Etsy, the Information Technology Industry Council, the National Taxpayers Union, NetChoice and TechNet.

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 protected]


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