The Senate Is Trying to Tax What You Buy Online — Again

A group of senators has offered a new bill that would widen states’ ability to tax online purchases.

The Amazon homepage appears on a screen in Washington on September 3, 2010.
National Journal
Dustin Volz
July 16, 2014, 10:01 a.m.

Your In­ter­net ac­cess will soon be forever free from gov­ern­ment taxes — un­less the Sen­ate gets in the way.

Boost­ers of tax-free In­ter­net con­nec­tions barely had time to cel­eb­rate a ma­jor win in the House this week be­fore a threat to its sur­viv­al emerged overnight in the up­per cham­ber.

On Tues­day, the House passed a bill by voice vote that would make per­man­ent an ex­pir­ing ban on fed­er­al, state, and loc­al tax­a­tion of In­ter­net ac­cess. The pop­u­lar meas­ure is primed and ready for con­sid­er­a­tion in the Sen­ate, where a sim­il­ar bill sponsored by Sen. Ron Wyden has tal­lied more than 50 co­spon­sors.

But just hours after the House bill passed, a group of bi­par­tis­an sen­at­ors in­tro­duced a new bill link­ing the tax ban to a more com­plic­ated and con­tro­ver­sial push to strengthen the power of states to tax on­line pur­chases of items like books, fur­niture, and elec­tron­ics to help close budget short­falls.

The swift man­euver amounts to a last-ditch ef­fort to re­vive the stalled on­line-sales-tax le­gis­la­tion, which passed the Sen­ate last year but has gained little trac­tion since. But it also cleaves the co­ali­tion that sup­ports a morator­i­um on tax­ing In­ter­net ac­cess — and it could prove a bur­den­some hurdle that stalls any ex­ten­sion from reach­ing the pres­id­ent’s desk be­fore the ban ex­pires later this year.

The Mar­ket­place and In­ter­net Tax Fair­ness Act, in­tro­duced by Re­pub­lic­an Sen. Mi­chael En­zi, Sen­ate Ma­jor­ity Whip Sen. Dick Durbin, and a hand­ful of oth­ers, would al­low states to levy a sales tax on on­line pur­chases from out-of-state re­tail­ers. Cur­rent law dic­tates that states can­not en­force a sales tax on on­line mer­chand­ise bought from a com­pany that does not have a phys­ic­al loc­a­tion with­in the same state.

In ad­di­tion, the bill would ex­tend for 10 years the morator­i­um on tax­ing In­ter­net ac­cess, which is set to ex­pire Nov. 1. Un­like the House of­fer­ing, it would not make the tax ban per­man­ent.

The plan to broaden states’ abil­ity to tax on­line sales has been per­col­at­ing in Con­gress for years, and it has earned in­flu­en­tial back­ing from tra­di­tion­al re­tail­ers as well as the on­line be­hemoth Amazon. Oth­er on­line re­tail­ers such as eBay and a num­ber of an­ti­tax groups op­pose the meas­ure.

But des­pite the Sen­ate ac­tion last year, the House has yet to act on the mat­ter. The Per­man­ent In­ter­net Tax Free­dom Act that passed the lower cham­ber on Tues­day was viewed as a pos­sible piggy­back ride for an on­line-sales-tax amend­ment. But House Ju­di­ciary Com­mit­tee Chair­man Bob Good­latte, the bill’s spon­sor, has res­isted at­tempts to tack it on, des­pite a hear­ing in March ex­amin­ing the is­sue.

Adding pres­sure to En­zi and Durbin’s ef­fort: Mak­ing the tax ban on In­ter­net ac­cess per­man­ent, as the House bill does, means law­makers might not have an­oth­er chance to lever­age the is­sue to pro­mote an on­line-sales tax.

But in­dic­a­tions are that Good­latte and House lead­er­ship feel they have a strong hand, bolstered by the loom­ing dead­line on the ac­cess-tax morator­i­um. Fol­low­ing the in­tro­duc­tion of the Sen­ate bill, Good­latte re­it­er­ated in a state­ment his hope that the up­per cham­ber would pass a clean ver­sion of his per­man­ent ban be­fore the morator­i­um ex­pires Nov. 1.

Wyden, the cham­pi­on of the Sen­ate’s tax-ac­cess ban, used a state­ment ap­plaud­ing the House’s ac­tion to take a force­ful swipe at any ef­fort to pair it with an on­line-sales-tax meas­ure.

“It is so im­port­ant to re­ject ap­proaches like the Mar­ket­place Fair­ness Act that passed the Sen­ate last year, which would fun­da­ment­ally dis­crim­in­ate against states that do not levy a sales tax and against U.S. com­pan­ies versus their for­eign com­pet­it­ors,” the Ore­gon Demo­crat said. “It would amount to a body blow to on­line re­tail­ers and ser­vices across the coun­try.”

Wyden chairs the Sen­ate Fin­ance Com­mit­tee, which holds jur­is­dic­tion over on­line tax is­sues. Op­pon­ents of on­line-sales-tax le­gis­la­tion ex­pect Wyden and Good­latte to work in tan­dem to block an amend­ment to their clean tax-ac­cess meas­ure.

Re­tail­ers and oth­ers lob­by­ing hard for the on­line-sales tax still be­lieve there is a way for­ward, however, and they in­sist the le­gis­la­tion is a “near cous­in” of the push to ban In­ter­net-ac­cess taxes. And hav­ing Durbin — the second-most power­ful Demo­crat in the Sen­ate — on their side provides some ne­ces­sary muscle that could help the meas­ure over­come op­pos­i­tion from Wyden and the House.

“I’m not that con­cerned about this end­ing in a stale­mate,” said Dav­id French, seni­or vice pres­id­ent of gov­ern­ment af­fairs at the Na­tion­al Re­tail Fed­er­a­tion. “I think there’s a path for­ward, and our Sen­ate spon­sors are com­mit­ted to get­ting this done.”

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