Senate approves online sales tax

WASHINGTON—A bill that would tax all online purchases sailed through the U.S. Senate this week with broad bipartisan support.

The Marketplace Fairness Act allows state governments to tax consumers in other states for online purchases, regardless of the seller’s location, if the business does at least $1 million in annual sales. Currently, businesses are only required to collect sales tax in states where the company maintains a physical presence. Consumers are lawfully required to pay sales tax on internet purchases, but state governments contend most people do not report online purchases.

The legislation, which did not go through the committee process, passed in a 69-27 floor vote. Lawmakers split on the issue, with 22 Republicans joining the majority of Democrats in supporting the bill, and five Democrats voting against it.

The conservative group Americans for Prosperity (AFP) said the 22 GOP senators voting in favor should “take a lesson from the five Democrats who got this right” and voted against the act. AFP claims the bill disproportionately affects entrepreneurs and small business owners, who would have to track almost 10,000 U.S. sales tax jurisdictions.

The Heritage Foundation also opposes the legislation, and Americans for Tax Reform said it transgresses the no-tax pledge most Republicans have signed. The Conservative Action Project, chaired by former U.S. Attorney General Edwin Meese and former U.S. Rep. David McIntosh, R-Ind., also opposes the act, saying, “This is a dangerous extension of state power, violating core principles of federalism. At the same time, it subjects consumers, businesses, and entrepreneurs to thousands of state and local tax regimes.”

But not all conservatives agree: The American Conservative Union applauds the legislation as “a solution to the federally created unlevel playing field between online and brick-and-mortar retailers.” It views the current system as another way the government is picking winners and losers in the marketplace, when sales tax for identical items is collected at a store location but not online.

Let Freedom Ring, a group advocating limited government and economic freedom, also supports the bill. In a letter circulated to members of congress, Let Freedom Ring President Colin Hanna called the current law a “loophole” that allows online consumers to avoid paying what they owe. It is important, he wrote, that taxes in force “be paid, both because it is fair and because the true costs of government must not be hidden from the American people.”

The legislation faces uncertainty in the House, but it’s almost certain to be taken off the fast track. Rep. Tim Huelskamp, R-Kan., told me he’s confident House leadership would take the legislation through the committee process to make sure the issue is fully vetted.

The bill is expected to raise between $10 billion and $23 billion in tax revenue.