The Senate sided with traditional retailers and financially strapped state and local governments Monday by passing a bill that would widely subject online shopping – for many a largely tax-free frontier – to state sales taxes.
The Senate passed the bill by a vote of 69 to 27, getting support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Barack Obama has conveyed his support for the measure.
Under current law, states can require retailers to collect sales taxes only if the store has a physical presence in the state.
That means big retailers with stores all over the country like Wal-Mart, Best Buy and Target collect sales taxes when they sell goods over the Internet. But online retailers like eBay and Amazon don’t have to collect sales taxes, except in states where they have offices or distribution centers.
As a result, many online sales are tax-free, giving Internet retailers an advantage over brick-and-mortar stores.
“We ought to have a structure in place in the states that treats all retail the same,” said Matthew Shay, president and CEO of the National Retail Federation. “Small retailers are collecting (sales tax) on the first dollar of any sale they make, and it’s only fair that other retailers who are selling to those same customers the same product have those same obligations.”
The bill would empower states to require businesses to collect taxes for products they sell on the Internet, in catalogs and through radio and TV ads. Under the legislation, the sales taxes would be sent to the state where the shopper lives.
A sales-tax collection exemption offered to Amazon.com to open a Lexington County distribution center in 2011 sparked a controversy among lawmakers in South Carolina. Gov. Nikki Haley opposed the incentive, which later was approved by state lawmakers.