A bipartisan group of senators introduced a bill Wednesday aimed at giving states more power to collect billions of dollars in sales taxes on out-of-state Internet and catalog purchases.
While traditional brick-and-mortar retailers collect state, city and other local sales taxes from customers who make purchases in their stores and then pass the taxes on to the respective governments, divergent state laws have let many online and catalog retailers avoid collecting and passing on those same taxes.
The proposal, sponsored by five Democrats and five Republicans, is designed to streamline the nation's more than 7,500 sales-tax jurisdictions and make it easier for states to collect sales taxes from online and catalog purchases.
"This legislation would give states the ability to close the online sales-tax loophole, created when out-of-state sellers don't collect, and purchasers don't pay, the state sales tax - even though they still owe it," said Sen. Lamar Alexander, Tennessee Republican who co-sponsored the bill. "This loophole subsidizes out-of-state businesses at the expense of Tennessee businesses and subsidizes some taxpayers at the expense of others."
Online retail giant Amazon.com, which for years has fought measures at the state level to collect sales taxes, recently agreed to begin collecting the taxes and supports the Senate proposal.
Amazon "will work with Congress, retailers and the states to get this bipartisan legislation passed," said Paul Misener, Amazon vice president for global public policy. "It's a win-win resolution."
But many Internet-based business oppose the Senate proposal, saying it would stifle online sales.
"In essence, we're seeing some members of Congress throw one of our best growth industries under the bus to pursue less than half a penny in new taxes," said Steve DelBianco, executive director of NetChoice, an Internet advocacy group. "Does anyone besides big-box retailers really think it's a good idea to saddle small-business owners with a new tax system?"
The Senate bill would allow states to voluntarily participate in a program that would require people or companies who sell goods and services "remotely" via the Internet or mail-order catalogs to collect and remit sales and use taxes after 90 days. The bill's sponsors say the agreement would better synchronize tax rules, bring uniformity to the definitions of items sold, reduce the paperwork burden on retailers and incorporate new technology to modernize administrative procedures.
Twenty-four states already have changed their tax laws and implemented the requirements of the agreement.
Sen. Michael B. Enzi, Wyoming Republican who began spearheading the effort behind the legislation more than a decade ago, said the tax loopholes costs states collectively about $23 billion annually.
"I've been a mayor and I've been a retailer, and I know that there are lot of extra things that are put on the people that are on Main Street or in the community that people outside don't have to participate in, but sales taxes shouldn't be one of the them," he said.
Senate Majority Whip Richard J. Durbin of Illinois, a principal Democratic co-sponsor of the bill, said most people don't know or don't abide by existing state laws that require them to pay sales taxes on items purchased via the Internet.
"It isn't a fair system, that's for sure," he said. "I run into so many retailers who are completely beleaguered by competition with Internet sales."
The bill exempts businesses with less than $500,000 in annual remote sales, a move designed to protect small businesses. A similar House version of the measure includes a $1 million sales exemption.
It's uncertain if or when the bill could reach the Senate floor for a vote.
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