The politics of online sales taxes

Updated
 
An Amazon.com fulfillment center in Goodyear, Ariz.
An Amazon.com fulfillment center in Goodyear, Ariz.
Associated Press

When there are 69 votes in the Senate for anything, it’s an uncommon day in the chamber, but when there are 69 Senate votes for a tax bill, something unusual is going on.

The Senate sided with traditional retailers and financially strapped state and local governments Monday by passing a bill that would widely subject online shopping – for many a largely tax-free frontier – to state sales taxes.

The Senate passed the bill by a vote of 69 to 27, getting support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Barack Obama has conveyed his support for the measure.

The politics of this one were a pleasant change of pace. For the most part, Democrats supported the bill and Republicans didn’t, but take a look at the roll call and note the non-traditional pairings. In this bill, several conservative Republicans from red states like Mississippi, Nebraska, and Alabama voted for online sales taxes, while more progressive Democrats from blue states like Oregon and New Hampshire voted against it.

Put it this way: when Sen. Mike Enzi (R-Wyo.) votes for a tax increase and Sen. Ron Wyden (D-Ore.) votes against it, you know the “Marketplace Fairness Act” isn’t the usual bill.

So, what’s the story? The law currently only requires online outlets to charge a sales tax if the business has a brick-and-mortar building in the state. This system, in turn, creates a disjointed series of advantages and disadvantages – it hurts local retailers who don’t want to lose customers to Internet retailers, but it also hurts online outlets like Best Buy and Target which are trying to compete in both markets, and don’t want to lose online customers to websites that won’t have to charge sales taxes.

It led to a non-traditional lobbying strategy in which conservative Republicans pushed for sales taxes in order to protect local retailers and create a more level playing field for sales competition. Indeed, proponents said they didn’t see this as a tax increase at all, so much as it would apply the same sales tax consumers would pay elsewhere. (As the AP noted, many states already require people to pay unpaid sales tax on online purchases when they file their state income tax returns, but few consumers comply.)

What’s more, Democratic and Republican policymakers at the state level, where sales-tax revenue is critically important, have also been pushing Congress on the issue.

So, given all of this and the lopsided Senate vote, Internet sales taxes are on the way, right? Well, not just yet.

There’s still the Republican-led House to consider.

[O]pponents say they will try to slow the process down in the House and shift the conversation to their issues: fears that the complexity of collecting the taxes will put many Internet retailers out of business or subject them to an avalanche of audits from state and local governments around the country.

In a “Memo for the Movement,” a coalition of 52 conservatives on Monday demanded that House Republican leaders not bring the Senate bill straight to the House floor and also said House conservatives “should reject any bill that expands the authority of out-of-state governments to regulate businesses with regard to online taxation.”

Signers included Mr. Norquist, the keeper of the no-new-taxes pledge that almost every Republican in Washington has signed, conservative luminaries including Phyllis Schlafly and Richard Viguerie, and the heads of Heritage Action, the Heritage Foundation’s political arm, the Tea Party Patriots, Americans for Prosperity and FreedomWorks.

This is not to say the bill is DOA in the House – it has 65 co-sponsors, almost half of whom are Republican – but it may require House Republican leaders to once again consider circumventing the so-called Hastert Rule.

Sales Taxes and Tax Policy

The politics of online sales taxes

Updated