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Senate prepares to vote on nationwide online sales tax rules

Senate prepares to vote on nationwide online sales tax rules

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The US Senate could be voting this week on a bill that would authorize states to collect sales taxes from online sellers, creating a federal framework for what's so far been a state-based issue. As The Hill reports, Senate Majority Leader Harry Reid (D-NV) has filed to end debate, with a preliminary vote scheduled for Monday and a vote on the bill itself likely to come this week. Called the Marketplace Fairness Act of 2013 (PDF), the bill is meant to make it easier for states to collect online sales tax, a move both local legislators and brick-and-mortar business owners have advocated for years. While it wouldn't require states to do anything, it would give them the option to make online sellers collect taxes, regardless of whether they have a physical presence in the state.

Currently, sellers often don't automatically include sales tax in online purchases. Buyers are asked to estimate how much they should have paid each year, then send it with their annual tax filings. This rule has proved unwieldy, however, and offline sellers argue it gives web stores an unfair advantage. But states who have attempted to collect online tax can usually only do so if the company has a significant offline presence in the form of offices, warehouses, or affiliated businesses. Amazon, unsurprisingly, has been the biggest target. While it's started collecting taxes in several states, it's also threatened to shut down distribution centers in an attempt to avoid them, and it's blamed so-called "Amazon taxes" on big-box retailers threatened by its success.

eBay, not Amazon, has been the biggest online seller to oppose the bill

In this case, though, Congress won't be fighting Amazon. Amazon has pushed for a federal sales tax law since at least 2011, reasoning that it would be applied more fairly and simply than a plethora of state rules. As the company builds out its locker and delivery services, it's also becoming harder to escape sales taxes altogether. Instead, eBay has appeared as one of the major opponents, largely because its business model involves a huge number of small storefronts. While the Senate bill includes an escape clause for small sellers who take in less than $1 million a year, eBay's John Donahoe is emailing users and sellers to argue that the threshold is too low, asking them to support a $10 million or 50 employee limit.

The Senate already made a symbolic vote on the bill, expressing strong support that suggests a favorable final vote next week. If it passes, though, the House will still need to vote on a companion, a process that could take longer. While retailers have lobbied heavily for the bill, tax-focused conservatives have opposed it, complaining that it's effectively a new tax rather than a way to enforce an old one. And consumers, even if they're not opposed to the sales tax on principle, won't enjoy the prospect of having to pay a new fee at checkout.

Update: On Monday, the White House released its official word of support for the bill, saying it "will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies."

Update 2: As expected, the Senate has voted overwhelmingly to move forward to the next step in the legislative process.