Showdown looming in Congress over Web sales taxes

Posted: July 31, 2014

CONGRESS could soon face an unpleasant task if it wants to extend a law that bans state and local governments from taxing residents to browse the Web. The current law, last renewed in 2007, expires Nov. 1, days before midterm elections.

If the law isn't renewed, broadband users would see connection fees similar to those appearing on monthly cellphone bills.

So what's Congress doing about all this? The House passed a bill July 15 to permanently ban any Internet-access taxes. But when the bill got to the Senate, things soon got very interesting.

The Senate saw an opportunity to revive its moribund Marketplace Fairness Act, which passed in May 2013 but has been collecting dust in the House. That bill would require online retailers to collect tax on sales they make to out-of-state consumers.

A bipartisan group of senators, including Majority Whip Dick Durbin, D-Ill., introduced a new bill that simply combined the act with a ban on Internet-access taxes until Nov. 1, 2024.

Currently, states can only make online retailers with a physical presence in the state - a store or warehouse - collect sales taxes.

The issue has divided retailers based on how they sell their wares. Most who sell via brick-and-mortar stores, including department stores and big-box retailers, support the online-sales tax, which they claim is needed to level the playing field for all retailers. That's interesting, because only 6 percent of all retail sales are online, according to the most recent U.S. Census Bureau data.

Dan Roitman, CEO of Center City-based Stroll, said in an interview last year that the Senate bill would force businesses like his - an online-marketing platform that sells audio language-learning products, mostly out of state - to become unpaid tax collectors for states in which they have no physical presence. Roitman, who could not be reached for comment yesterday, had called the proposed online-sales tax a "nightmare" last year.

The Senate bill would exempt the first $1 million in gross receipts from the tax man.

The brouhaha could come to a boil when Congress returns from its summer recess in September. But will the gambit by the Senate actually work?

Senate Finance Committee Chairman Ron Wyden, D-Ore., says Internet-access taxes and online-sales taxes are "separate issues." Wyden, who supports a ban on Internet-access taxes, said the online-sales-tax bill "would amount to a body blow to online retailers and services" in the U.S.

Unless Wyden reverses himself, Senate leaders would have to buck the wishes of the committee overseeing online-tax issues to move a combo bill, which is likely to pass. That could force the House to choose between letting states start taxing you to browse the Web and biting the bullet on online-sales taxes.


On Twitter: @MHinkelman

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