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Law & Disorder / Civilization & Discontents

Senate advances “online sales tax” by 74-20 vote

The Marketplace Fairness Act would mean taxation for nearly all online sales.

Your tax-free days of online shopping are numbered. If S743, also known as the Marketplace Fairness Act, becomes law, the millions of Americans who have been able to avoid sales tax online will have to start paying it. Given the broad support shown by today's US Senate vote, some version of it is likely to come to fruition.

The bill will compel companies having annual online sales of more than $1 million to collect sales tax on those purchases. Interstate sales have long been exempted from sales tax, but brick-and-mortar businesses have just as long complained about the edge that online businesses have since they avoid collecting taxes. A key opponent of online taxation, retail giant Amazon, recently switched sides after losing some key legal and political battles over taxation. Amazon already collects taxes on sales in nine states, including California, New York, and Texas.

Technically this wouldn't be a new tax, since California residents who make purchases from an online company are responsible for paying those taxes. But there's never been an efficient way to collect such taxes so it rarely happens.

The "cloture" vote on needed 60 votes to move forward, and it got 74.

"We've had a lot of innovation in the online space, but federal laws have failed to keep pace," said bill supporter Sen. Mark Udall (D-CO). "Today nearly one in ten sales occur online," and the lost sales tax revenue is hurting state coffers. "It just makes common sense... the Marketplace Fairness Act is about equitable treatment for all sales."

Opponents have already shifted their focus to limiting the scope of the bill through amendments, but it remains unclear if that will make much headway.

"A vote for the Marketplace Fairness Act is a vote to subject a senator's home state Internet [sales] companies to tax collectors in state courts around the country," said Sen. Ron Wyden (D-OR). Instead, states should look to "voluntary compacts" making it easier for companies to voluntarily collect sales taxes, rather than being compelled to do so.

In addition, the act is an attempt to apply "local laws to the international medium that is the Internet," said Wyden. That could inspire other countries in their own efforts to regulate the Internet, with taxes or with outright censorship.

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