Battle lines sharpen over an Internet sales tax

Small businesses and tax-free states are uniting to combat the Senate-passed measure as it heads to the House.

By Jason Notte May 7, 2013 12:51PM
Cursor on shopping cart icon button, studio shot © Ed Honowitz, Photodisc, Getty ImagesThe Senate moved an Internet sales tax one step closer to reality on Monday, and the planned levy has already made disparate portions of the retail process a bit more uniform.

Online retailers and lawmakers in states without sales tax are now united in their hatred of the idea.

The Senate passed the bill by a vote of 69 to 27 with support from both Republicans and Democrats. The measure now moves to the House of Representatives, which will determine the fate of the current law, which says states can require retailers to collect sales taxes only if the company has a physical presence in the state, like a store or distribution center.

If the House passes the new measure -- an outcome that's still more possible than inevitable -- online retailers with more than $1 million a year in annual sales outside their home state would have to start collecting sales tax upfront. They would also be forced to send payments to local governments across the country.

That's led to backlash from eBay (EBAY), which wants the out-of-state sales exemption bumped up to $10 million, and from its marketplace of small sellers as well as mom-and-pop online retailers like Garage Flooring in Grand Junction, Colo., which sneaks in just over the $1 million annual threshold.

Garage Flooring owner Peter Krauss told CNNMoney he'll have to update his accounting software, hire a computer programmer to revamp his virtual shopping cart system, then continually file paperwork. Setting up would cost him $40,000, he estimates, with about $4,000 a year going to an accounting software provider to process transactions and file paperwork.

"I didn't sign up to be a tax collector," he said. "The federal and state governments are putting the burden on small businesses."

Actually, most bricks-and-mortar shops with online operations, including Wal-Mart (WMT), Best Buy (BBY) and Target (TGT), already are tax collectors and bear that burden on a regular basis. A study commissioned by (AMZN), which has voiced strong support for the bill, estimates that the measure would affect roughly 7,500 businesses, and it says they currently have an unfair advantage over competitors that are subject to local sales taxes.

Last year, Internet sales in the U.S. totaled $226 billion, up nearly 16% from the previous year, according to government estimates. States lost $23 billion in revenue last year because they couldn't collect taxes on out-of-state sales, according to a study done for the National Conference of State Legislatures, which has lobbied for the bill.

Commerce groups like the National Retail Federation and lawmakers supporting the legislation say that disparity is turning bricks-and-mortar retailers into cash-bleeding showrooms for products that cost less online.

Supporters say the bill requires states to provide free computer software to help retailers calculate sales taxes, based on where shoppers live. It also requires those states to establish a single entity to receive Internet sales taxes so retailers don't have to send it to individual counties or cities.

Still, legislators from states without sales taxes -- including Montana, New Hampshire and Oregon -- are vigorously opposed and gearing up for a fight in the House. They insist that businesses in their states shouldn't have to collect taxes for other states.

While anti-tax groups and House conservatives are on their side, the tacit approval from lawmakers in sales-tax-free Delaware and relative silence from Speaker of the House John Boehner and other Republicans already have both retailers and tax-free states nervous.

More on moneyNOW

May 7, 2013 1:24PM
I do not see the Big Box Stores saying that due to the size and volume of purchases done, they get extra discounts from manufactures that small vendors do not get. Just another scam  to collect more taxes.
May 8, 2013 4:41AM
What no one is mentioning is the fact sales tax is NOT the only reason people shop online.  In the majority of cases the online companies can actually price their products lower because they don't have the same overhead most brick and mortar business do.  I use Amazon all the time because their prices are lower on most items, sales tax or not.  I know in my small business (not an online business) I don't charge out of state customers my state sales tax because it's not required by the state tax laws.
May 8, 2013 7:50AM
I know my state is looking at these tax dollars to fund our failing public education system.  If someone says "it's for the children", it's a done deal.  We will now be able to spend that money to create more drop-outs and food stamp recipients.
May 8, 2013 8:13AM
Lets see our gov cut the number of fed agents/police and their huge dept budgets. Do we need the Homeland Security Agency, when we already have the National Security Agency?. Do we need the Treasury agents, when we already have the FBI?. The list goes on and on. Do we need to allow the Gov to initiate more useless wars, without ratification by congress and using 'conflict' as a back door to grab unlimited funds for all the defence contractors to keep up the big grabs out of our pockets?. If you feel that my attitude attacks the very foundation of our way of life and should be discounted as some kind of liberal attack, consider what could have been done with all those billions here at home?. Consider, if there was no unlimited 'Black Budget', if there was no illegal imigration allowed and we refrained from giving free medical care to those who 'sneak' in, or if we stop giving away money to those governments that allow hatred of the USA to be taught in their schools?. The possibilities are endless to say the least. The old ways of the back room should be over with today and getting rid of those Dems and the GOP morons, with more money than brains in the next elections is the right way to start. Get big money out of deciding what we the people need!. 
May 7, 2013 8:36PM
The rich get richer and the poor get poorer Typical communist !  
May 9, 2013 10:59AM

If this ISN'T an effort to collect more taxes - then why not ELIMINATE ALL SALES TAXES - instead of imposing an additional tax on Internet purchases?  This is - PLAIN & SIMPLE - another MONEY GRAB by the GOVERNMENT!  We're being taxed into eternity now - EVERYTHING has a tax connected to it - EVEN DEATH!!!  Does everyone know that not long ago we had NO INCOME TAXES?!?!?!  Look how successful the country was when we were "ALLOWED" to work for our pay and then spend what we worked for - or save it - but it should be OUR DECISION!  Look what happens when we let Politicians decide how to spend our hard-erned monies!!!  A REVOLUTION is coming in this country between the haves & have nots and its long overdue!!!

May 8, 2013 11:02AM
Just pay the tax and see how fast on-line prices climb.  If you opened a business then you agreed to collect the taxes. ALL the states want the money and now some can sit back and act like they do not care.  If you sell something to a state that does not require you to collect a tax then send it to the state your  in and see how fast the other state is to cry about it.  Bottom line it is cutting into your profit and now your over head is going to climb.  BOOHOO suck it up 
May 7, 2013 4:48PM

Couldnt get a gun bill, couldnt get splost,let us sneak a few hidden taxes on folks. the ad valorum tax is great. we slipped that one by the georgians let see what else we can do.


Anarckist and tyrants

 this must be Rome

May 8, 2013 5:43AM
Sales tax should have been applied all along. Then the ecomonic conditions would not be so poor, and local businesses would still be able to compete.
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