Online Sales Tax Bill Moves Forward In Senate

* Bill gives states power to compel online sales taxes

* Anti-tax activist Norquist vows to fight effort in House

By Kim Dixon and Lisa Lambert

WASHINGTON, April 25 (Reuters) - The U.S. Senate on Thursday voted to move forward with legislation that would allow states to force retailers to collect online sales taxes, though the measure lost supporters after opponents stepped up lobbying this week.

The bipartisan proposal cleared a procedural hurdle after 63 members in the 100-seat Senate backed it; the measure previously was held up by opponents. Critics largely cited potential burdens on small businesses, many in states that do not impose sales taxes.

Earlier this week, nearly three-quarters of Senators backed the measure, suggesting lobbyists - including online retailer Ebay and the financial industry - were successful in changing lawmakers' minds.

A final vote on the legislation had been expected this week but was pushed back to the week of May 6.

At issue is the ability of states to collect taxes from online merchants without a physical presence within their borders.

The bill would extend states' authority to require retailers to collect tax outside their physical borders, though it would not require states to do so. It would exempt merchants with online annual out-of-state sales of $1 million or less.

The legislation faces much tougher odds in the Republican-controlled U.S. House of Representatives, where some Republicans view it as a tax increase.


Anti-tax activist Grover Norquist told signers of his anti-tax pledge that supporting an online tax would be tantamount to reneging on their promise not to raise income taxes.

He was on Thursday plotting a strategy to stop the bill's momentum in the House.

"You do this new thing where you start to make it easy for people to tax across state lines," Norquist told Reuters in an interview, saying the legislation could lead to states pushing to collect income and other taxes beyond their borders.

Norquist said Republicans will introduce an amendment to limit the legislation, to "smoke out the advocates of exporting taxes across state lines," he said.

Backers say the measure explicitly rules out new taxes and only applies to sales taxes. The nonpartisan Congressional Budget Office said the legislation will have no impact on the federal budget deficit.

Opposition is led by eBay, whose chief executive has been encouraging its millions of users to oppose the effort.

Financial firms also weighed in this week against the measure, worried that it would give states new authority to impose taxes on financial transactions over the Internet.

Opponents also include Democratic Senator Max Baucus, the chairman of the Senate Finance Committee. His fellow Democrats are bypassing his panel to bring the measure straight to the Senate floor.

Supporters of the measure include brick-and-mortar retailers such as Wal-Mart Stores Inc and Best Buy Co Inc and cash-strapped state governments, including the National Governors' Association.



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