WASHINGTON — The Senate sided with traditional retailers and financially strapped state and local governments Monday by passing a bill that would widely subject online shopping — for many a largely tax-free frontier — to state sales taxes.
The Senate passed the bill by a 69-27 vote, with support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Barack Obama has conveyed his support for the measure.
Oklahoma's senators, Jim Inhofe, R-Tulsa, and Tom Coburn, R-Muskogee, voted against it.
“The Marketplace Fairness Act first and foremost represents a tax increase, which is why I opposed it,” Inhofe said in a statement. “I am also concerned this bill would add layers of red tape and regulations onto online businesses of all sizes, which in turn would hurt consumers, entrepreneurs, and future economic growth.”
Coburn spokesman Aaron Fobson said Coburn does not support the Internet sales tax, favoring overall tax reform.
Under current law, states can only require retailers to collect sales taxes if the store has a physical presence in the state.
That means big retailers with stores all over the country, including Walmart, Best Buy and Target, collect sales taxes when they sell goods over the Internet. But online retailers such as eBay and Amazon don't have to collect sales taxes, except in states where they have offices or distribution centers.
As a result, many online sales are tax-free, giving Internet retailers an advantage over brick-and-mortar stores.
The Oklahoma Tax Commission says the state loses $185 million to $225 million in tax revenue from Internet sales each year. Oklahoma City Mayor Mick Cornett estimates the city loses more than $10 million each year in sales tax revenue from Internet sales.
“We ought to have a structure in place in the states that treats all retail the same,” said Matthew Shay, president and CEO of the National Retail Federation. “Small retailers are collecting (sales tax) on the first dollar of any sale they make, and it's only fair that other retailers who are selling to those same customers the same product have those same obligations.”
The bill would empower states to require businesses to collect taxes for products they sell online, in catalogs and through radio and TV ads. The taxes would be sent to the state where the shopper lives.
Supporters say the current tax disparity is turning some traditional stores into showrooms, where shoppers pick out items they like, then buy them on the Internet to avoid sales taxes.
Internet giant eBay is leading the fight against the bill, along with lawmakers from states with no sales tax and several prominent anti-tax groups. The bill's opponents say it would put an expensive obligation on small businesses because they are not as equipped as national merchandisers to collect and remit sales taxes at the multitude of state rates.
“Giant retailers have a requirement to collect sales taxes nationwide because they have physical presence nationwide,” eBay president John Donahoe wrote in an online column over the weekend. “Likewise, today small retail stores and online retailers collect sales taxes for the one state where they are located. That's a fair requirement.”
Businesses with less than $1 million in online sales would be exempt. eBay wants to exempt businesses with up to $10 million in sales or fewer than 50 employees.
Last year, Internet sales in the U.S. totaled $226 billion, up nearly 16 percent from the previous year, according to government estimates.
States lost $23 billion 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 lobbied for the bill.
Supporters say the bill makes it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes. States must also establish a single entity to receive Internet sales tax revenue.
Small retailers are collecting (sales tax) on the first dollar of any sale they make, and it's only fair that other retailers who are selling to those same customers the same product have those same obligations.”
President and CEO of the National Retail Federation