State online sales tax bill revived in U.S. Congress

WASHINGTON Thu Feb 14, 2013 5:26pm EST

WASHINGTON Feb 14 (Reuters) - U.S. states could collect millions of dollars in online sales taxes, with members of both parties in Congress sponsoring legislation on Thursday that would resolve states' decades-long struggle to tax businesses beyond their borders.

"Small businesses and states alike are suffering from the inability to collect due - not new - taxes from purchases made online," said Republican Representative Steve Womack, from Arkansas, adding the legislation is a "bipartisan, bicameral, common-sense solution that promotes states' rights and levels the playing field for our Main Street businesses."

Legislation on the Amazon tax, nicknamed for the colossal Internet retailer, has languished in Congress for years.

In 1992 the Supreme Court decided the patchwork of state tax laws made it too difficult for on-line retailers to collect and remit sales taxes. Currently, states can only tax Internet sales made by companies with a physical presence within state borders. In practice, that means online retailers such as Amazon.com Inc. collect sales tax in some states and not in others.

The bills introduced on Thursday reconcile differences in legislation that the House of Representatives and Senate considered last year. The nearly identical details in the bills and strong bipartisan support mean the final bill could be sent to President Barack Obama to sign into law this year.

Members of Congress recently assured state lawmakers they would pass a law in 2013.

In the last decade, Internet sales have gone from 1.6 percent of all U.S. retail sales to more than 5 percent, according to Commerce Department data, a proportion that will likely grow as shoppers turn more to handheld devices to make purchases. In the third quarter of 2012, retail "e-commerce" sales were $57 billion, the department said.

Large Internet retailers are worried the tax could drive up the cost of doing business. They would also have to create new systems and software to collect the surcharges, adding to their costs. Amazon said in July it prefers having the tax issue resolved at the federal level.

When the 2007-09 recession caused states' revenues to collapse, both Republican and Democratic governors advocated for the tax as a financial solution that would not require the federal government to provide direct aid.

A leader in the Republican party, Virginia Governor Bob McDonnell went so far as to assume the state will soon bring in online tax revenue in his recent plan for overhauling the state's transportation funding.

"The revenue states are losing out on is legally owed, but because of a pre-Internet Supreme Court ruling, states aren't able to collect it," Deb Peters, a Republican state senator in South Dakota, said in a statement.

States and cities say they can recoup billions of dollars with the tax. Fitch Ratings estimates that states currently lose out on $11 billion in revenues.

Some states are considering their own legislation. Florida is currently debating a bill that advocates say could bring the state more than $400 million.

Small retailers, meanwhile, have said the sales tax will will allow them to compete with massive online retailers.

"While store owners collect and remit state and local sales taxes their digital competitors are off the hook - and benefiting because of it," said David French, the National Retail Federation's senior vice president for government relations, in a statement.