U.S. Senate passes bill to collect Internet sales tax

Internet retail transactions have long escaped taxation in the U.S. A new bill aims to plug the leak.
Written by Andrew Nusca, Contributor
(Photo illustration: Andrew Nusca)

Late yesterday evening, the U.S. Senate passed legislation to force Internet retailers to collect sales taxes for state and local governments.

The vote was 69-to-27 in favor, and included senators from both major parties. The vote sends the issue to the House of Representatives, where it must be passed in the same form before it can be presented to the president to be signed into law.

The 11-page bill, called the Marketplace Fairness Act, allows U.S. states to force online retailers with more than $1 million in annual out-of-state sales to collect sales taxes from customers and remit them back to state and local governments. States will be required to provide software to help calculate the taxes.

You can read the actual bill, introduced in the Senate as S.743, here. The House version is H.R.684.

Today, U.S. states can impose a sales tax on products or services sold in that state, including those offered online; most do, some do not. Court rulings around the issue have required retailers to have a physical presence in the state to be subject to taxation.

The new legislation is interesting because it is a tax-related measure that divides the usual base of support for such things. Ideologically speaking, Republican legislators have long opposed most taxation efforts; on the other hand, the lack of taxation on Internet transactions comes at the expense of brick-and-mortar retail businesses, another area of support for that party.

Supporters see the measure as a way to protect government's right to collect taxes; opponents see the measure as yet another tax. Either way, it represents a major change in the way that the online marketplace has been functioning to date, and could trigger audits as businesses that engage in e-commerce come under further scrutiny.

President Barack Obama has indicated that he supports the measure, leaving House lawmakers with the final hurdle.

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