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Web Sales Tax Fight Heats Up

Tom Williams/CQ Roll Call
Senate Majority Whip Dick Durbin (center) has been the retail industry’s chief crusader for Congressional action on issues such as sales tax collection from online stores.

Senate Majority Whip Dick Durbin seems to have a knack for getting himself in the middle of big business brawls.

The Illinois Democrat was still celebrating his latest victory Tuesday in his years-long fight with banks over debit card swipe fees as his opponents in another high-stakes battle prepared their next attack. This time, it’s on his proposal to require online retailers to collect sales tax just like their storefront counterparts.

For almost a decade, retailers have pleaded for Congressional action on both issues, and in the past year Durbin has emerged as the industry’s chief crusader.

Retailers are pressuring the super committee to include language based on the online sales tax bill Durbin introduced this summer in its deficit reduction plan.

Durbin has been working with Republican Sens. Lamar Alexander (Tenn.) and Mike Enzi (Wyo.), who are expected to drop bipartisan legislation as soon as today as members of the American Booksellers Association and several other organizations representing independent business blanket Capitol Hill in support of the idea.

Meanwhile, a host of powerful opponents — the most prominent of which is eBay Inc. — is crafting carefully timed attacks. Sens. Ron Wyden (D-Ore.) and Kelly Ayotte (R-N.H.) are preparing to introduce a counterproposal that seeks to protect small businesses from any new tax regime.

The Wyden-Ayotte measure, which is expected to be nonbinding, would affirm that no federal legislation should give states the authority to impose any new tax-collecting requirements on small Internet businesses and entrepreneurs, which they argue would be burdensome.  A similar resolution was introduced by Rep. Dan Lungren (R-Calif.) in the House in February.

“That authority should not be given to the states because it would result in piecemeal state [sales] taxes,” Ayotte said, adding that final decisions on the resolution, as of Tuesday, were still being wrapped up. “Ultimately, I certainly don’t want to put us in a position where we are empowering further taxes.”

Currently a state cannot compel out-of-state Internet vendors to collect and pay the sales tax its residents are required to pay on purchases from traditional brick-and-mortar stores. 

For example, when a customer in Illinois, which has a sales tax, buys a product from an online vendor in New Hampshire, which does not have a sales tax, Illinois cannot force the New Hampshire vendor to collect and pay the Illinois tax on that sale. 

The Joint Committee on Deficit Reduction has three weeks to slash $1.2 trillion from the government’s budget, and while the sales tax proposals would not contribute to federal coffers, supporters argue the added state sales tax revenue could help mitigate the effect of cuts on already strapped state budgets.

“Whatever the super committee does, the states are going to be adversely impacted. It’s our best argument,” said David French, chief lobbyist for the National Retail Federation. “This is not inherently something the super committee is going to want to do by themselves.”

Retailers are reminding lawmakers that  they’ve got allies, arguing that states could collect about $23 billion in new tax revenue in 2012, or more than a quarter of a trillion dollars in the next decade.

Their claims are bolstered by members of the National Conference of State Legislatures, who came to Washington in September to make the case for the proposal in meetings with members of the super committee and Congressional leaders.

But Durbin dismissed the notion that the deficit panel would take up the mantle. “You guys think the super committee is doing everything,” he told Roll Call.

The NRF has spent about $3.4 million on lobbying so far this year and the Retail Industry Leaders Association has spent $2.6 million, according to lobbying disclosure reports.

Opposition has come from anti-tax advocates and large Internet retailers such as eBay, which has spent about $2.7 million on lobbying activities in the past year.

“There’s no question that eBay’s fundamental concern is that there is an appropriate small-business exemption,” said Brian Bieron, director of government relations at eBay. “The whole idea that there is Internet retail and storefront retail and they are different businesses is fundamentally wrong. Everyone in retail is on the Internet. ... The political debate is not about Internet versus store, this is about big retailers versus small-business retailers.”

Until recently, Amazon was staunchly opposed to the idea. But the company reversed its position this fall after several states, including California and Texas, ruled Amazon transactions would be subject to sales tax. Amazon did not return Roll Call’s requests for comment.

No one seems to be arguing that the sales taxes are not due. Instead, the debate is focused on who should be held responsible for collecting the revenue.

Catalog companies and businesses that sell exclusively over the Internet argue that the bills place an unfair burden on remote retailers.

“It’s forcing the retailers to become the unpaid tax collectors,” said Jerry Cerasale, the senior vice president for government affairs at the Direct Marketing Association, which has spent $160,000 on federal lobbying this year. “The question becomes: Does the state have the right to put an unfunded mandate on the seller to do their work for them?”

Retailers and the online companies seem poised to spend millions of dollars in a lobbying battle that could closely resemble the swipe fee debate that played out this spring. Indeed, Durbin counted among his recent successes in that fight Bank of America Corp.’s announcement Tuesday that it would not — as it had previously announced — charge customers a $5 debit card fee to make up for the lost revenue from the reduction of retailers’ swipe fees. 

And the same people who helped him win the swipe fee fight are planning a similar lobbying blitz on the Internet sales tax issue. The NRF alone has pledged to spend $10 million on advocacy in the next several years, and online sales tax is its top priority.

“If it doesn’t happen [in the super committee], we’re are going to look for the next possible vehicle,” said Katherine Lugar, executive vice president for the RILA. “Any possible place that talks about states’ rights or the deficit.”

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