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Amid online shopping frenzy, Internet sales tax fight picks up

The ability of online retailers to avoid collecting taxes has frustrated brick-and-mortar retailers, such as David Didriksen (pictured), owner of Willow Books and Cafe in Acton. Jon Chase for the Boston Globe/Globe Freelance

WASHINGTON — Key lawmakers and major retailers, eager to seize on a short window of opportunity, plan to use the waning weeks of this Congress to push a long-stalled bill that would force Internet retailers to collect state sales taxes.

With the online holiday shopping frenzy jolting to a start this week — beginning with what is now commonly called Cyber Monday — the reinvigorated battle in Washington could determine how much customers pay for online goods and how much states benefit from increased sales tax figures.

The high-dollar battle pits physical Main Street against the virtual one. Its outcome, both sides warn, also will affect the future of America’s small businesses – from the cozy bookshop in Acton to the online jewelry store near Cape Cod.


“There is no bigger issue for us,” said Jon Hurst, president of Retailers Association of Massachusetts, who has spent years pushing legislation known as the Marketplace Fairness Act.

Bipartisan backers, from the National Governors Association to Foot Locker, insist Internet retailers should place the same taxes on their products as brick-and-mortar stores do. Supporters are keeping close watch on legislation that has passed the Senate and awaits action in the House.

Opponents, including some top House Republicans, argue the added taxes would crush e-commerce and require more regulatory burdens for online businesses.

Massachusetts requires companies to collect the state’s 6.25 percent sales tax for online sales but only if that company has a physical presence there. The Bay State could reap more than $200 million annually if Internet companies had to collect sales taxes on every online purchase in Massachusetts.

The ability of online retailers to avoid collecting these taxes — either keeping the extra money or gaining an edge over competitors by charging consumers less — has frustrated brick-and-mortar retailers.

“I am contributing to the welfare of the state and schools and this out-of-state company is getting a special break and giving nothing back to the community,” said David Didriksen, who has run his small bookstore, Willow Books and Cafe, in Acton for nearly two decades. “It’s just totally unfair.”


Massachusetts Treasurer Steven Grossman, a backer of the bill, said the additional tax revenue could help spur state investment.

“If anybody wants to fund universal prekindergarten or infrastructure investments, this is the best way to do it,” Grossman said.

Massachusetts has already made a deal with Amazon, the country’s largest online retailer, to collect sales taxes. But that agreement only applies to purchases made on Amazon and not other online sales.

Taxpayers are supposed to report and pay the uncollected sales tax from their online purchases when they file state income taxes. But many fail to do so, and states often do not crack down on them for it.

A version of the bill passed the Senate last year 69 to 27, with support from 21 Republicans. Senate majority leader Harry Reid vowed this fall to help propel the legislation through Congress before Republicans take control of the Senate in January. Senator Elizabeth Warren and then-Senator Mo Cowan, both Democrats of Massachusetts, voted in favor of the Senate legislation.

Influential supporters such as Senate bill sponsor Michael Enzi, a Wyoming Republican and senior member of the Senate Budget Committee, continue to push for its passage this session. Reid could include it as part of a broader legislative package that addresses tax laws set to expire Dec 11.


A spokesman for House Speaker John A. Boehner has said he does not plan to take up the legislation this year, although Representative Jason Chaffetz, a prominent Utah Republican, is working on a compromise bill. Chaffetz’s office did not respond to questions about when he might file his legislation.

Representative Michael Capuano, a Somerville Democrat, cosponsored the House version of the bill last year. It is a debate, he said, that has gone on “for as long as I can remember.”

The National Retail Federation, the world’s largest retail trade association, has thrown six-figures into radio ads, television spots, and other outreach. Its members will walk Capitol Hill corridors in early December to seek backing for the legislation. Travelers at Ronald Reagan Washington National Airport can see posters plastered across its terminals that depict Main Street scenes and rally support for the bill.

“We feel like we are close and are trying to break it loose,” said David French, the organization’s senior vice president for government relations.

Senator Ted Cruz, Republican of Texas, has no intention of letting that happen. Flanked by conservative groups at a recent press conference, Cruz referred to the legislation as “the height of lunacy.”

He slammed the bill as a tax increase that would destroy opportunities for small online businesses by subjecting them to thousands of tax jurisdictions.

“Don’t mess with the freedom of the Internet that allows people with nothing to start mom-and-pop online retailers and start toward the American dream,” he said.


Consumers are increasingly turning to online shopping, with Cyber Monday’s purchasing spree a prime example.

Cyber Monday desktop online spending reached $1.7 billion last year, up 18 percent from the previous year. This crowned it the heaviest online spending day in history, according to comScore, an Internet analytics company.

Overall e-commerce is expected to increase from 8 percent of retail sales in 2013 to 11 percent in 2018, estimated Cambridge-based Forrester Research, a technology research company.

While Amazon supports the legislation, online marketplace eBay has become the most vocal retailer to oppose it.

The company recently drew up form letters, asking consumers to tell lawmakers they should oppose a last-minute vote this year. The Senate-passed bill would apply to businesses with at least $1 million in online sales, a threshold the company wants raised.

“Legislation should support small businesses, not put them out of business,” the letter reads. “Unfortunately, the Senate-passed Internet sales tax legislation will make these businesses less competitive against big national retailers.”

Smaller online startups share similar concerns.

“It’s scary,” said Melinda Reed, who sells coastal-themed products across the country from Mattapoisett. The website for Ocean Offerings offers sea shell flatware, dune jewelry, and nautical charts.

Reed collects sales taxes on Massachusetts orders but worries how she would coordinate them for the fish rings that go through New Mexico or the gurgle pots that head to Texas.

“To try and manage that for a small business,” she said, “I can’t imagine.”


Jessica Meyers can be reached at jessica.meyers@globe.com. Follow her on Twitter @jessicameyers.