U.S. Senate Approves Proposed Internet Sales Tax

An Internet sales tax is inching its way closer to being the law of the land: The U.S. Senate supported a non-binding vote of approval, 75-to-24, for a law that would allow states to collect taxes from Internet retailers. If enacted as is, it would allow states to levy taxes on some online retail purchases from businesses with over $1 million in gross receipts.

Internet retailers can thank their mostly tax-free existence to a 1992 Supreme Court Case, Quill Corp. v. North Dakota, which declared that companies without a “substantial nexus” in a state didn’t have to pay sales tax. “Quill became a seminal case for online retailers: It meant, in essence, that they didn’t have to pay state and local sales taxes,” writes the Washington Post’s Ezra Klein.” That’s allowed them to undercut traditional brick-and-mortar stores on price. It’s also meant that state and local governments, which rely heavily on sales taxes, have lost enormous amounts of revenue as more and more commerce has moved online.”

There are some exceptions: Amazon currently charges California residents sales tax, and will soon charge residents of Massachusetts and Connecticut, after new offices and acquisitions gave it a significant presence in those states.

A score of Internet lobbies, such as Netchoice, representing Facebook, Yahoo, and (TechCrunch’s parent company) Aol, argue that the senate’s bill “does nothing to address what the Supreme Court says was an unreasonable burden on interstate commerce,” explains Steve Delbianco of Netchoice.

An equally self-interested set of lobbies, such as the National Retail Federation, representing the big box likes of OfficeMax, Macy’s, And Saks, argue that an Internet sales tax ban gives online retailers an unfair advantage and deprives states of billions in revenue.

The current law will give readers a flavor for the sausage factory that is the U.S. Congress. The tax was offered as a non-binding amendment to the Democratic budget by Senators Mike Enzi and Dick Durbin.

“The strategy of the bill’s supporters is to offer this general amendment and then claim that all the senators that vote for it support the bill,” explains Brian Bieron, eBay’s senior director for federal government relations and global public policy, to CNET. “That is not just a stretch, it is not accurate. But the game plan is to rack up a sizable vote and then make the claim the bill itself should jump over the Finance Committee and go right to the floor.”

So nothing is law yet, but it’s getting closer.