WASHINGTON - Tax-free shopping on the Internet could be in jeopardy under a bill making its way through the Senate.
The bill would empower states to require online retailers to collect state and local sales taxes for purchases made over the Internet. The sales taxes would be sent to the states where a shopper lives.
Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers a big advantage over brick-and-mortar stores.
In this Oct. 18, 2010 file photo, an Amazon.com package is prepared for shipment by a United Parcel Service (UPS) driver in Palo Alto, Calif. States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the Senate Monday.
The Senate voted 74 to 20 Monday to take up the bill. If that level of support continues, the Senate could pass the bill as early as this week.
Supporters say the bill is about fairness for businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.
"While local, community-based stores and shops compete for customers on many levels, including service and selection, they cannot compete on sales tax," said Matthew Shay, president and CEO of the National Retail Federation. "Congress needs to address this disparity."
And, he added, "Despite what the opponents say this is not a new tax."
In many states, shoppers are required to pay unpaid sales tax when they file their state income tax returns. However, states complain that few people comply.
"I do know about three people that comply with that," said Sen. Mike Enzi, R-Wyo., the bill's main sponsor.
President Barack Obama supports the bill. His administration says it would help restore needed funding for education, police and firefighters, roads and bridges and health care.
But the bill's fate is uncertain in the House, where some Republicans regard it as a tax increase. Heritage Action for America, the activist arm of the conservative Heritage Foundation, opposes the bill and will count the vote in its legislative scorecard.
"It is going to make online businesses the tax collectors for the nation," said Sen. Kelly Ayotte, R-N.H. "It really tramples on the decision New Hampshire has made not to have a sales tax."
Many of the nation's governors - Republicans and Democrats - have been lobbying the federal government for years for the authority to collect sales taxes from online sales, said Dan Crippen, executive director of the National Governors Association. Those efforts intensified when state tax revenues took a hit from the recession and the slow economic recovery.
"It's a matter of equity for businesses," Crippen said. "It's a matter of revenue for states."