UPDATE 4-U.S. Senate votes to move forward on bill taxing Internet sales

Mon Apr 22, 2013 6:23pm EDT

* Internet sales tax bill expected to pass Senate this week
    * President Barack Obama weighs in with backing for bill
    * More opposition ahead in House of Representatives
    * Financial concerns weigh in for first time, opposing
effort


    By Kim Dixon and Nanette Byrnes
    WASHINGTON, April 22 (Reuters) - A measure to empower U.S.
states to require out-of-state retailers to collect online sales
tax cleared a legislative hurdle in the Senate on Monday, after
earlier winning official backing from President Barack Obama.
    Seventy-four senators voted to limit debate and move forward
with a final vote on the proposed legislation in the
Democratic-controlled Senate, likely on Wednesday.
    "You have businesses all around America on Main Streets and
shopping malls collecting sales tax on the things that they
sell, competing with Internet retailers who do not," said
Democratic co-sponsor Senator Richard Durbin.
    Supporters of the measure include brick-and-mortar retailers
such as Wal-Mart Stores Inc and Best Buy Co Inc 
and cash-strapped state governments, along with Amazon.com Inc
, which hopes to simplify its U.S. state retail tax
situation. Opponents include many online merchants, including
eBay Inc and Overstock.com Inc. 
    Prospects for the bipartisan measure are murkier in the
Republican-controlled House of Representatives, where some
Republicans view it as a tax increase.
    Lobbyists on both sides are working to make their case in
Congress. Several new wrinkles emerged on Monday, a key one
being that the Obama administration for the first time
officially backed the measure.
    White House spokesman Jay Carney said the bill "will level
the playing field for local small business retailers who are
undercut every day by out-of-state on-line companies."
    Amazon, with its extensive network of distribution centers,
already collects tax in nine states, and has agreements with
seven more states to start charging in the next year. Amazon has
been actively supporting the bill on Capitol Hill.
    The bipartisan National Governors Association supports the
tax, and in a letter to lawmakers on Monday said the disparate
treatment of online and Main Street businesses is "shuttering
stores and undermining state budgets."
    For its part, eBay's chief executive launched a major
lobbying blitz this week, pleading with its millions of users to
oppose the effort. 
    
    WALL STREET WEIGHS IN
    In a twist to the lobbying on the issue that has gone on for
years, the Securities Industry and Financial Markets Association
came out in opposition to the bill.
    Representing big investment banks like Goldman Sachs Group
, but also online companies like E*TRADE Financial Corp
, SIFMA said the bill could lead to a state-level
financial transaction tax and "unexpected" consumer costs.
    Eleven EU countries are embracing a federal-level financial
transaction tax on trading in stocks, bonds and derivatives. The
Obama administration opposes such a tax for the United States.
    The idea of imposing a financial transaction tax at the
state level in the United States seemed unlikely to Verenda
Smith, deputy director of the Federation of Tax Administrators.
    She said she was not aware of any states that impose such a
tax. "It's hard for a state to even broaden their sales tax to
include hairdressers," Smith said. "I don't want to think how
hard it would be to broaden to financial transactions." 
    Under current law, states can only mandate that online
merchants with physical stores or affiliates within state
borders collect sales tax. Consumers are supposed to pay the tax
on their own, but few even know about this. 
    As a result, online-only retailers often have a pricing edge
over bricks-and-mortar retailers in many markets.
    Critics say it will create more complications, especially
for small businesses, which may have to comply with conflicting
state laws and new software. 
    "The bill has never been about helping Main Street but about
helping Big Box stores," said Steve Delbianco, an official with
a coalition of e-commerce companies called Netchoice.
    The legislation would extend the authority of U.S. states to
online sales outside their physical borders, though it would not
require them to do so. It would exempt merchants with online
annual out-of-state sales of $1 million or less.
    "The reason the (banks) are nervous about it is they have
managed to successfully argue against their services being taxed
because it is so mobile," said Kim Ruben, an economist and
director of state issues at the Tax Policy Center, a centrist
think tank in Washington.