U.S. Senate Considers Internet Sales Tax Bill

Updated 4/24/2012 - Meghan McArdle has further discussion at the Daily Beast.

The U.S. Senate is considering a bill that would allow states to collect sales tax on internet sales. The Marketplace Fairness Act of 2013 would empower the states to require online retailers that make more than $1 million in internet sales per year to collect sales tax based on the buyer's location.  The sales taxes would then be sent to the state where a shopper lives.  Presently, a state may only require a seller to collect sales tax if the seller maintains a physical presence in that state, making many online sales tax-free transactions.

The White House has endorsed the bill.  Proponents of the bill assert that it is intended to address the disparity between brick-and-mortar stores and internet vendors, as well as to generate additional revenue for the states.  They point out that technically, the bill does not create a new tax, but rather would impose the duty to collect already-due taxes on the seller rather than the buyer (buyers in states with sales tax are generally required to pay sales tax on their internet purchases, but this rule goes virtually universally ignored).

The proposed Act faces stiff opposition in the House of Representatives.  Opponents of the bill, including eBay CEO John Dunahoe, claim that it would place undue burdens on internet-based businesses by forcing them to comply with regulations in multiple jurisdictions in which they have little or no presence. The National Taxpayers Union dubbed the bill "really just a way to unleash state tax collectors on the Internet," while The Wall Street Journal called it an "online revenue raid."

Companies that do much or all of their business online will no doubt follow this bill with great interest.  The Senate is expected to vote on it as early as next Monday, April 29, 2013.