Bill To Collect Sales Tax On Online Purchases Faces Uncertain Future In House

Online Sales Tax Supporters Hope Messaging Wins Over Conservatives

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WASHINGTON -- While the U.S. Senate on Monday gave overwhelming support to a bill to empower states to collect sales tax on online purchases, chances for its passage in the Republican-controlled House of Representatives are far less certain.

The overwhelming 69-27 vote in the Senate, however, has given the measure momentum and surprised even some of its backers. "It's going to be a tough challenge, but I think a doable challenge," Rep. Peter Welch (D-Vt.), a co-sponsor, told The Huffington Post. "The big bipartisan Senate vote put to rest the argument that this is a new tax."

The Supreme Court ruled in 1992 that states have the right to collect sales tax for online and catalog purchases, but states currently rely on consumers to voluntarily pay that tax to state collectors. Under the new legislation, private software companies would provide programs to online retailers to collect those taxes and then transmit the money to state governments. The bill has been a key issue for state and local leaders and has gained support from Amazon and Walmart.

The bill was immediately referred to the House Judiciary Committee, chaired by Virginia Republican Bob Goodlatte, who expressed concerns about the bill Monday evening but pledged give it a fair hearing.

"I do not believe the Marketplace Fairness Act is sufficiently simplified yet," Goodlatte said Monday (see below for his full statement). "There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions."

Operatives on and off the Hill say the bill's fate rests in Goodlatte's hands, as House Speaker John Boehner (R-Ohio) is committed to moving it through the regular process.

Fifteen GOP governors have come out in support of the bill. For them, it's a way to get more revenue without raising taxes or cutting spending back home. And Amazon, which previously opposed the measure, is now a supporter. (Amazon has brick and mortar warehouses in so many states that it's being forced to collect sales taxes anyway.)

The strongly conservative wing of the Republican party, meanwhile, is working hard to beat it. "It's become a conservative litmus test," said one high-level GOP operative. "On the other hand, most governors are pressuring members and retailers have a lot of juice. Think how many jobs the big boxes [stores] produce in each district."

The measure, known as the Marketplace Fairness Act, is the second element of a two-part strategy employed by Senate Majority Whip Dick Durbin (D-Ill.) aimed at gathering support and campaign cash for Democrats from brick-and-mortar merchants and retailers like Best Buy and Walmart. Part one of Durbin's strategy was to regulate the swipe fees banks can charge merchants. A Democratic operative close to Durbin confirmed that the Marketplace Fairness Act is part two of the plan.

Back in 2012, Durbin told This American Life that senators spend an inordinate amount of time "conjuring up new ideas on how to raise money."

"I think most Americans would be shocked-- not surprised, but shocked-- if they knew how much time a United States senator spends raising money. And how much time we spend talking about raising money, and thinking about raising money, and planning to raise money. And, you know, going off on little retreats and conjuring up new ideas on how to raise money," he said.

That Congress is even dealing with the online sales tax issue is an example of how the need to raise campaign cash helps set the agenda. As one moderate Democratic senator put it during the swipe fee fight, "I'm surprised at how much of our time is spent trying to divide up the spoils between various economic interests. I had no idea. I thought we’d be focused on civil liberties, on education policy, energy policy and so on."

"The fights down here can be put in two or three categories: The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards," the senator said.

Both the swipe fee and online sales tax efforts were cosponsored by Sen. Mike Enzi (R-Wyo.), and involved unusual bipartisan coalitions. In order to win over enough Republicans, the argument that the the online sales tax bill does not create a new tax has been central to its advocates, who have taken to describing it as a "due tax," a term coined by Rep. Steve Womack (R-Ark.), who is handling outreach to fellow Republicans.

Welch, the bill's co-sponsor, told HuffPost that the states' rights argument will be key to selling the legislation to House Republicans. Boehner told Politico on Tuesday that he will let the bill work through the Judiciary Committee first.

Opponents, including eBay and lawmakers from states without sales taxes, have argued that the legislation would turn small businesses into tax collectors and saddle them with both monetary and time costs.

Briann Bieron, the senior global public policy director for eBay, said that he and other opponents of the measure plan to discuss the need to overhaul the Senate version of the bill with committee members, including exempting online businesses with less than $10 million in revenue from the tax requirement. The current language exempts online businesses with less than $1 million in revenue. Bieron told HuffPost that a "more open" House process will be beneficial and allow for all sides to be considered.

Womack spokeswoman Claire Burghoff told HuffPost that her boss plans to work with Goodlatte, the committee chairman, to "maintain the integrity of his bill."

Michael Kercheval, the president and CEO of the International Council of Shopping Centers, told HuffPost that members of Congress should expect to hear from small businesses in their districts. The small business lobby, which supports the bill, has argued that the ability to skirt sales taxes while shopping online pushes consumers away from brick-and-mortar stores and leaves states without much-needed revenue.

The National Conference of State Legislatures has estimated that states collectively lost $23 billion in uncollected online sales taxes last year. Kercheval said that money could be best used to offset property tax hikes at the local level, as well as budget cuts. "No one wants to cut police, fire and schools," he said. "That is what those local taxes support."

Read Goodlatte's full statement on the bill below:

I do not believe the Marketplace Fairness Act is sufficiently simplified yet. While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions. There is also concern that despite disclaimers the bill could create due process type concerns regarding the ability for affected businesses to sufficiently petition for relief from aggressive state actions and could open the door for states to tax or even regulate beyond their borders. 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.

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