Senate OK’s state tax on Internet sales

Supporters say bill levels retail playing field

Sarah Davis’s Internet handbag company,, may have to begin collecting non-California sales taxes.
Lenny Ignelzi/Associated Press
Sarah Davis’s Internet handbag company,, may have to begin collecting non-California sales taxes.

WASHINGTON — The Senate aimed to help 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 Obama has conveyed his support.

Under current law, states can only require retailers to collect sales taxes if the store has a physical presence in the state.


That means big retailers with stores all over the country like Walmart, Best Buy, and Target collect sales taxes when they sell goods over the Internet. But online retailers like eBay and Amazon don’t have to collect sales taxes, except in states where they have offices or distribution centers.

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‘‘We ought to have a structure in place in the states that treats all retail the same,’’ said Matthew Shay, president and chief executive of the National Retail Federation.

The bill would empower states to require businesses to collect taxes for products they sell on the Internet, in catalogs, and through radio and TV ads. Under the legislation, the sales taxes would be sent to the state where the shopper lives.

Supporters say the tax disparity is turning some traditional stores into showrooms, where shoppers pick out items they like, then buy them on the Internet to avoid sales taxes.

‘‘It’s about the way commerce has changed in America,’’ said Senator Dick Durbin, Democrat of Illinois.


Internet giant eBay is leading the fight against the bill, along with lawmakers from states with no sales tax and several prominent antitax groups. The bill’s opponents say it would put an expensive obligation on small businesses because they are not as equipped as national merchandisers to collect and remit sales taxes at the multitude of state rates.

Businesses with less than $1 million in online sales would be exempt. EBay wants to exempt businesses with up to $10 million in sales or fewer than 50 employees.

The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the United States totaled $226 billion, up nearly 16 percent from the previous year, according to government estimates.

In the House, Republican Speaker John Boehner has not commented publicly about the bill, giving supporters hope that he could be won over.