Internet sales tax faces a tougher sell in the House after passing Senate

Internet taxes? Not so fast.

A bill that would let states collect Internet sales taxes from online retailers and their customers may have sailed through the Senate, but it is expected to face much more resistance from tax-wary Republicans in the House.

Though the Marketplace Fairness Act, sponsored by Sens. Richard J. Durbin, Illinois Democrat, and Mike Enzi, Wyoming Republican, is a bipartisan bill that is backed by more than 20 House Republicans, supporters and opponents both agree it will be a “harder fight” in the House with billions of dollars in future e-commerce at stake.

“It’s definitely going to be tougher than the Senate vote,” said Claire Burghoff, communications director for Rep. Steve Womack, the Arkansas Republican who is sponsoring the bill’s sister legislation in the House. “But we’re really confident in its prospects that we can get this done once and for all.”

The Senate voted 69-27 on Monday to send the Marketplace Fairness Act to the House for final passage.
Technically, it would not create a new tax. Consumers are already supposed to pay sales taxes directly to the government when they shop online. But some studies estimate that as much as $23 billion in online sales taxes go uncollected each year, because many consumers don’t realize this.

So the bill would require Internet retailers to collect the tax — just like their brick-and-mortar peers now do. The government sees this as a more efficient means of collection.

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“Some suggest this is a tax on the Internet,” Sen. Lamar Alexander, Tennessee Republican, said during Monday’s floor debate. “But every senator knows there’s a law against taxing the Internet. This is a tax that everybody owes that only some people pay.”

States have thrown their support behind the Marketplace Fairness Act, because they want these uncollected taxes to help fill their coffers. Brick-and-mortar stores also support it as a way to level the playing field. They point out that online stores enjoy an unfair advantage, because many consumers go online to save money by avoiding sales tax.

But many online retailers, including eBay, oppose the bill, because they say it would shift the unfair advantage to the opposite end of the spectrum. While traditional retailers only collect the tax rates for where their stores are located, which is fairly simple, online stores would have to collect sales taxes based on where their customers are located.

An online retailer would have to deal with more than 9,600 tax-collecting jurisdictions, including state and local governments. Not only do these governments have their own, unique tax rates, but they also classify products different. For instance, in one city, a candy bar may be considered taxable good, but in another city it may be classified as “food,” which is often not taxed at all.

Supporters point out that the bill has more “momentum” than past efforts by Congress to collect Internet sales taxes.

“We’re really encouraged by the momentum that the bill has gotten in this Congress,” Ms. Burghoff said. “Mr. Womack is hopeful and positive.”

But opponents expect it to be slowed down in the House.

“In the Senate, they went around the committee,” said Grover Norquist, an anti-tax advocate who heads Americans for Tax Reform. “They rushed it through. You won’t find that in the House.”

In the House, the question is whether the bill will have support from a majority of Republicans, who control the lower chamber. There’s little doubt that it would pass in a floor vote, because it has overwhelming Democratic support and a good amount of Republican support. But if fewer than half of House Republicans support it, the bill likely won’t even make it to the floor — a principle for all bills that Speaker John A, Boehner has indicated he plans to follow.

The Marketplace Fairness Act also will go through the regular committee process, where it can be debated and amended, rather than going straight to the floor for a vote as happened in the upper chamber.
“The speaker has not made a public comment as to where he stands on the issue,” said Kay Bell, tax specialist at Bankrate.com. “He’s playing it very close right now, trying to gauge where his party is.”

In the House, it will go through the judiciary committee, which is headed by Rep. Bob Goodlatte, Virginia Republican. He has said he’s open to considering the bill, but wants to see changes before it goes to the floor for a vote.

“I understand the concerns of retailers on this issue,” Mr. Goodlatte said in a recent statement, before going on to caution that “I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet.
“While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially (thousands) of tax rates and a host of different tax codes and definitions,” he said.

Opponents hope this will give House Republicans a chance to either reject the Marketplace Fairness Act or make critical changes to it.

“I think if a bill is going to get enacted into law, it will be a better bill that doesn’t hurt small businesses that use the Internet,” said Brian Bieron, senior director of global public policy at eBay, which is advocating for changes to the Marketplace Fairness Act or the creation of an entirely new Internet tax bill.
But after a closer battle in the House, the end vote will likely be the same, experts say.

“I do expect it will eventually pass,” Ms. Bell said. “But it’s going to be closer and I wouldn’t be surprised if it is massaged a little bit to make people more comfortable with the bill.”