The bill, known as the "Marketplace Fairness Act," would allow states to require online retailers to collect sales tax, even if the e-tailer doesn't have a physical presence in the state. Different versions of the proposal have been introduced in Congress for years, but all have died without a floor vote. Senate Majority Leader Harry Reid used a special process under Senate rules to bypass the usual procedure.
The proposal showed some life last month when it passed a test vote 75-24 during the budget debate.
A big difference this time around: Amazon.com (NASDAQ:AMZN), previously the biggest opponent of Congressional approval for online sales-tax collection, now supports the measure. In recent years Amazon has increasingly cut deals with states to give it property-tax breaks and other incentives in exchange for agreeing to collect state sales taxes for online sales to their residents.
The National Retail Federation and many large bricks-and-mortar retailers, who already have to collect sales tax for 45 states, have supported similar measures for years. Bricks-and-mortar chains have argued that the lack of sales-tax collection is a major advantage for online retailers, although collecting sales tax in an increasing number of states doesn't seem to have reduced Amazon's momentum.
The main opposition to the bill—and the reason for bypassing the Finance Committee—comes from senators from states that have no sales tax, including Alaska, Delaware, New Hampshire, Oregon and Montana. Montana Sen. Max Baucus, who strongly opposes the bill, is also the chairman of the Finance Committee, which is responsible for tax measures. That committee also includes senators from Oregon and Delaware. If the chairman decides never to bring a bill to be voted out of the committee, it dies there—a likely fate in this case.
Under the measure as written, online retailers in non-sales-tax states would still be required to collect sales tax from out-of-state customers. States would still decide individually whether to require sales-tax collection.
Technically, in most states that collect sales tax, residents who buy goods in another state and don't pay sales tax are required to pay a "use tax" that matches the sales tax. However, most don't. The bill in the Senate would shift that responsibility to online merchants.