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Online Sales Tax Backers Peg Last-Ditch Pitch to Holidays

Spencer Platt
Senate legislation would require online retailers such as Amazon to collect state “use taxes,” in lieu of sales taxes, when items are purchased by out-of-state consumers.

Proponents of Internet sales tax legislation are pinning their hopes on Senate action during the lame duck, while using the holiday shopping season to highlight the tax disparity between brick-and-mortar and online stores.

This time last year, members of Congress “were hearing and seeing stories in their local papers about people buying products inside stores on their smartphones to evade sales tax collection,” Jason Brewer, a spokesman for the Retail Industry Leaders Association, said in an interview.

“This should be the last holiday season for companies like Amazon and Overstock.com to get a special break over brick-and-mortar retailers,” Brewer added.

The legislation would essentially overturn a 1992 Supreme Court decision that prevents state governments from compelling tax collection on retailers that don’t have a physical presence within their borders.

Advocates, including the retailers association and cash-strapped states, believe the proposal has better chances if Senate leaders tuck it into any larger year-end compromise on taxes that is reached during the lame duck.

“We do think that this is a high enough priority that this would be part of the legislative package,” Max Behlke, a policy specialist for the National Council of State Legislatures, said in an interview.

The Internet sales tax bill that’s pending in the Senate, sponsored by Sens. Michael B. Enzi, R-Wyo., and Richard J. Durbin, D-Ill., awaits markup in the Finance Committee. Enzi spokesman Daniel Head would not confirm what options are being considered to advance the proposal (S 1832), although he added, “Sen. Enzi is working to get this bill done this year.”

The legislation would require online retailers such as Amazon and Zappos to collect state “use taxes,” in lieu of sales taxes, when items are purchased by out-of-state consumers. E-retailers that generate less than $500,000 in annual sales would be exempt under the Senate bill. A companion House measure differs mainly in that it sets the small-business exemption at $1 million.

While the House bill (HR 3179) hasn’t been marked up yet either, the lead authors, Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., used “Cyber Monday” — the online shopping day that follows Thanksgiving — to pen an editorial in Politico urging its passage.

State advocates, including Behlke’s group and the National Governors Association, have made the issue a top priority. As states brace for cuts to their federal funding, they say the Internet tax could help cushion the blow by generating an estimated $23 billion in annual revenue.

“We know there are cuts coming, and this is a way for Congress to provide states with more revenue,” Behlke said.

Opponents of online sales tax legislation are also trying to use the holiday season to win over lawmakers. Phil Bond, executive director of the We R Here Coalition, said many of its small-business members have turned to Internet retail as a way to compete with larger brick-and-mortar stores.

“I believe that members of Congress want to be on the side of small businesses,” Bond said.

Internet companies are divided on the issue. Giant e-retailer Amazon — which recently began collecting taxes in some of its biggest markets, including Texas and California — backs the legislation.

But eBay, which operates a marketplace for many mom-and-pop sellers, has objected, saying the small-business exemption is not high enough. Many technology industry groups — including TechAmerica, the Computer and Communications Industry Association, the Information Technology Industry Council and CompTIA — have sided with eBay.

The bill also faces opposition from anti-tax advocate Grover Norquist, who could sway congressional conservatives. “If you have to change the law, and when you change the law you collect more taxes, it’s a tax increase,” Norquist told CQ Roll Call in July.

Lawmakers representing states that do not have a sales tax, including Sens. Kelly Ayotte, R-N.H., and Ron Wyden, D-Ore., also balk. They say it would be unfair for businesses in their states to have to collect taxes.

They have introduced a resolution (S Res 309) to oppose new tax requirements on Internet companies. In the House, Democrat Zoe Lofgren and Republican Dan Lungren, both of California, have introduced a companion resolution (H Res 95).

This week, Rep. Darrell Issa, R-Calif., announced his intention to introduce a bill during the new Congress that would enact a two-year moratorium on bills that impose new regulations or burdens on the Internet. An Issa spokesman said the lawmaker was not targeting any specific bill, but opponents might be able to leverage such initiatives to stall the sales tax effort.

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