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Senate approves online sales tax. Is it fair, or a tax increase?

The Senate voted late Monday to require e-commerce businesses to collect sales taxes from buyers. The Marketplace Fairness Act may bring as much as $23 billion, by one estimate, in online sales tax revenue to states and cities. It faces an uncertain future in the House. 

By Ron SchererStaff writer / May 7, 2013

Kurt Zentmaier poses in his warehouse full of guitars in Claremont, N.H., last week. Mr. Zentmaier is president of Rondo Music, which only sells its guitars online and doesn't want an online sales tax.

Jim Cole/AP


New York

The day is inching closer when consumers will have to pay state and local sales taxes on goods they purchase on the Internet.

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The US Senate late Monday approved legislation to require any e-commerce business with more than $1 million in annual sales to collect a sales tax if the goods are delivered to a state that would normally charge such a tax. The Marketplace Fairness Act (MFA), which cleared the Senate by a vote of 69 to 27, now goes to the House.

Getting the legislation through the House, however, will be more difficult because a key Republican lawmaker, Rep. Bob Goodlatte (R) of Virginia, chairman of the House Judiciary Committee, has his doubts about the Senate version. Despite bipartisan support, the legislation will still have to pass through his committee – if or when he decides to allow a vote on it.

Conservative groups argue that it is unconstitutional to force e-retailers to tack on a sales tax when they have no physical presence in a state. They also say it will diminish tax competition among the states and will be difficult for online retailers to enforce, given that there are some 9,600 jurisdictions that collect a sales tax.

“It will present a great deal of compliance burdens that the existence of software cannot just magically erase,” argues Pete Sepp, executive vice president of the Washington-based National Taxpayers Union, which advocates lower taxes and limited government.

But conventional retailers, such as department stores and discounters such as Wal-Mart, as well as state governments looking for additional tax revenues, are urging the House to pass the legislation. They say it will “level the playing field” between themselves and Internet-only companies that have not charged sales tax in the past.

“This legislation is all about fairness,” says Michael Kercheval, president and chief executive officer of the International Council of Shopping Centers. “When lawmakers debate this bill, they usually start by saying, ‘I understand this is not fair and something needs to be done about it.’ ”

He says software now makes it possible for retailers to calculate sales taxes – which vary from state to state and city to city – just as easily as they calculate shipping charges. The law mandates that each state make sales tax software available free of charge to e-commerce businesses.

Most states would be happy to see the law enacted because they see a large pot of money that has not been collected in the past. A 2009 University of Tennessee study, based upon economic forecasting, projected unpaid sales taxes from Internet sales would amount to $23 billion in 2012.

“Closing the loophole will actually bring back jobs to bricks-and-mortar businesses, and the sales tax collected will bring new revenues into communities,” says Mr. Kercheval in an interview.


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