Online Sales-Tax Bill Passes Senate, With Surprises Ahead In The House

Now that the U.S. Senate has passed its bill to allow states to force online retailers to collect sales tax, the question for both brick-and-mortar chains and E-tailers is how quickly—or slowly—the bill will move through the House on its way to becoming law. The 69-27 vote on the Marketplace Fairness Act was lopsided, as expected. But that may be the end of any foregone conclusions as the bill heads into a much less certain future.

One assumption has already gone by the boards: House Speaker John Boehner plans to send the bill to the House Judiciary Committee, instead of the Ways and Means Committee, which would normally handle tax legislation. The Judiciary chairman, Robert Goodlatte, has said he has reservations about the bill, and hasn't yet scheduled any hearings on it. And as anyone who has followed the progress of this over the years knows, in a Congressional committee, the chairman can decide whether a bill lives or dies, no matter how the rest of his colleagues might vote.

In the Senate, for example, versions of the online sales-tax bill spent more than a decade languishing in the Finance Committee, where chairman Max Baucus also said he had reservations about it—and never let it be voted out of committee. (This year, the bill's sponsors circumvented Baucus to get a vote on the bill.)

But Goodlatte's reservations aren't the kiss of death, at least not yet. With strong bipartisan support and a large margin of victory in the Senate, the bill at least has some momentum going into the House.

It also has the advantage that landing in the Judiciary committee paints it as a matter of redrawing legal lines rather than a new tax (which is what assignment to Ways and Means would imply).

Goodlatte's concerns appear to be about the difficulty small online merchants will have dealing with so many tax jurisdictions. That may simply be code for "raise the minimum volume of out-of-state online taxable sales to $10 million," something that was likely to happen in any case. That's a tweak that would probably slow the bill down a little.

On the other hand, if Goodlatte wants a standard nationwide online sales-tax rate, things would likely get complicated for both retailers and state taxing authorities. That could throw out any chance of having the bill signed into law in this session of Congress.

Another unknown is exactly how the opposition will shape up when (and if) the bill emerges from committee, particularly among anti-tax House Republicans. That may not be insurmountable, in part because technically online tax collection isn't a new tax, so it wouldn't violate their anti-tax pledges.

But that position on the part of some Congressmen is not a foregone conclusion either. And there may yet be other surprises—after all, for all the anti-tax reputation of Republicans, the two most vigorous opponents of the bill in the Senate were Democrats.