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Senate passes nationwide online sales tax bill

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Amazon box (STOCK)
Amazon box (STOCK)

The US Senate has approved a bill that could one day spell the end of sales tax-free online purchases. The Marketplace Fairness Act of 2013, which the Senate symbolically supported earlier this year and has now passed by a margin of 69 to 27, will give states the authority to collect sales tax from online storefronts, regardless of whether the sellers have a physical presence in the state. Technically, citizens are supposed to estimate and pay internet sales tax on their annual returns, but this is rarely done, leading states to eye Amazon or other sellers as a prime source of uncollected tax revenue.

This bill is a centralized effort to address something states have been working on for years, coming at a time when the online market is changing. Amazon, which could once shut down warehouses to evade state sales tax, has embraced a more fast-paced sales model that requires local facilities; it supports the tax bill. eBay and others, by contrast, have argued that the bill would impose serious costs and inconvenience for small sellers, making them manage taxes for every state that chooses to collect. The bill doesn't apply to businesses that sell less than $1 million a year online, but both Etsy and eBay have said that threshold is too low and worked to push it higher.

Obama's White House 'strongly supports' the bill

In order to allay these concerns, the bill's authors adopted the standards set by the Streamlined Sales and Use Tax Agreement (SSUTA), a federal program designed to simplify online or mail-order commerce tax collection. To start collecting online taxes through the bill, states will need to either have SSUTA membership — at this moment, there are 22 full members and two associate members — or pass legislation that creates a central authority for tax collection, provides free tax software to online sellers, and limits the liability businesses would face if they make mistakes based on bad information from a software provider or state official.

While the bill passed by a wide margin, a small coalition of Republicans and Democrats combined forces to oppose it. This included Senator Ron Wyden (D-OR), a longtime supporter of internet privacy and network neutrality whose state has no sales tax. While Senator Lamar Alexander (R-TN) called the Marketplace Fairness Act a "states' rights bill," other conservatives worried that the bill was effectively a new tax that would "hamper the entrepreneurial spirit" of internet sellers, in the words of Senator Ted Cruz (R-TX).

From here, the Marketplace Fairness Act will head to the House; if it passes there, President Obama is very likely to sign it into law. The White House previously said in a statement (PDF) that it "strongly supports" the bill, which it hopes will "eliminate the unfair advantage currently enjoyed by big out-of-state online companies over local neighborhood-based small businesses."