Internet Sales Tax Bill Heads for the House

Bill not a slam dunk, as House is expected to simplify it

Tax-free online shopping may soon become a thing of the past. A bill allowing states to collect sales taxes on the Internet passed the Senate Monday evening 67 to 27. President Obama has supported the measure, but first it has to get through the House, where it faces an uncertain future.

The Marketplace Fairness Act would allow states to collect sales taxes from online retailers, like Amazon and eBay. Currently, states can only collect taxes from retailers that have a physical presence in their state. Small businesses that make less than $1 million would be exempt from the bill.

An Internet sales tax has been kicking around for a few years, but now that online shopping has grown into a $226 billion a year business, lawmakers finally took the plunge. The bill drew bipartisan support in the Senate and among traditional retail businesses looking to level the playing field with the growing online marketplace. Online retailers like Amazon supported the bill, while eBay and states that don't have sales taxes opposed it.

A handful of lawmakers worried that the bill could give states too much power trying to collect taxes across state lines and drive consumers to buy internationally in order to avoid taxes, an argument that could play well on the House side.

House Judiciary chairman Bob Goodlatte (R-Va.), whose committee would take up the bill, didn't dismiss the bill, but he didn't embrace the Senate version either.

"I do not believe the Marketplace Fairness Act is sufficiently simplified yet," Goodlatte said in a statement. "While it attempts to make tax collection simpler, it still has a long way to go… I am open to considering legislation concerning this topic but these issues, along with others, would certainly have to be addressed.  The Committee will also look at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies.”