Harry Reid's Internet Tax Bill Easily Passes in the Senate

May 7, 2013 -

Democrats and Republicans in the Senate seem to agree that requiring online retailers to collect sales tax is a great idea. A bipartisan coalition from both parties easily passed the Marketplace Fairness Act by a vote of 69-to-27. The bill was sponsored by Senator Harry Reid (D-Nevada) who fast-tracked the bill and avoided any committee that might have had oversight over the bill. The bill is a dream come true for traditional brick-and-mortar retailers who have long complained that internet retailers have an advantage over them because they generally don't have to collect sales tax from their customers.

But not everyone is so keen on this bill and its future remains uncertain as the House - dominated by Republicans - will likely put the kibosh on it getting to the President's desk. It also doesn't help that the one man a lot of Republicans listen to - Grover Norquist from Americans for Tax Reform - strongly opposes the bill. Last month representatives from his group warned lawmakers that passing this bill would violate any pledge they made to not raise taxes. They see this bill as a tax increase on Americans and strongly oppose it. Republicans in the House that are thinking about voting for it can expect some opposition from the group when they seek re-election.

On the other side of the fence, retailers are piling into cars, planes and buses to head to Washington this week to convince lawmakers that bills like the one being sponsored by Representative Steve Womack (R-Arkansas) are a good idea. It's a tough sell.

We will continue to follow this story as it develops.

 


Comments

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Isn't sales tax charged based on a persons residence anyway? Doesn't the state collect the sales tax from businesses because it's easier to tax at the business then to audit every single thing a person purchases and claim that they aren't paying their sales tax properly?

I'm asking because I live in Oregon where we don't have sales tax, and if I start getting charged sales tax simply because the business I'm purchasing from is in another state I'm not exactly going to keep buying things from online retailers unless I get an exemption. I already get taxed higher for property/income on average than other states.

In the end, the taxation issue only hurts the consumer, but then I guess taxes only really hurt the consumer.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Depending on where you live, there are multiple ways to calculate a sales tax. 99.99% of the time, the customer pays the sales tax based on the location of the retailer. So if you go to Walmart or some other brick and mortar store, you pay the sales tax of that store's location. 

Another way, that some people encounter, is with online, catalog or over the phone sales, you pay based on your location rather than the business. That is the case here in Oklahoma. So If I buy something from Swansons, a home delivery grocery service, I will pay the sales tax based on where my home is.

Other states simply base it on your Zip code, but Oklahoma gets even more specific. 

If this law passes as written, you will not be charged sales tax. 

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

TBH i'm seeing the term "fast tracked" a lot lately and that peeves me off more than these bills.

Isn't there a reason the checks and balances system was put in place?! skipping steps kind of defeats the entire purpose does it not? Why are they being allowed to do this?

oh right.. political power and the lack of input the people are actually capable of placing upon such decisions, thereby rendering all such decision making to these over powered morons... yay politics....

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Checks and balances are still in play. We have a multi-layer system in the US. A bill passed by the Senate must be heard and passed in the House, and vise versa. Once a bill passes both houses, then it goes to the President. If the President signs it, it becomes law at which point any party effected by the law can challenge it and the judicial system then checks it.

Fast tracking just means that the bill was not debated before a vote. There is no Constitutional guarantee that all bills should be debated.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

The committee that overviews tax issues didn't get to see it before it was voted on. That was completely wrong.

XBL/PSN Keegs79

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

 And thus without the debate, time taken to even look at, or any other consideration being enforced, the "checks and balances" fails to be upheld at its very core.

While theres no guarantee of that, its a pretty basic part of making sure things don't get passed that are unconstitutional (such as Cuomo's "S.A.F.E" act, and a good portion of the "Patriot" act)

The whole point that all those people need to vote on these things is because they're expected to LOOK at them first. In fact, thats 2/3 the reasoning behind even having these people paid to do something besides lie and raise taxes.  They shouldn't even get to the point of needing be challenged. And in some cases are enacted/enforced before any challenge can even be brought up.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Pretty much. Seems that when it comes the things in the constitution, deadly weapons take priority over silly little things like right to privacy and checks and balances.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Eh, personally I don't really see the huge advantage online retailers have outside of having merchandise you may not be able to get locally.

If I can buy it locally I do because you get out, get at least a bit social, do some walking, and you get your item quicker. To me it's just a lot more fun. If I can buy local I do it.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Let those brick and mortar retailers pile into their cars and drive to DC. This bill is far from fair. When those brick and mortar retailers are required to charge sales tax on the address of the buyer rather than their store's location, then we can start talking about "fairness".

There is a very simple change that would fix all this for good. Force online retailers to charge a sales tax, but the sales tax must be for the location of their business. If your business is located in Seattle Washington, then all sales through your online store are charged Seattle's sales tax. If your store is located in Portland Oregon, then you get the benefit of not charging your customers a sales tax. Works for me.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

The thing is that if it is being shipped to a Washington address from anywhere it is already being charged the sales tax as Washington state already has a bill like this one on the books. As someone who is living in Washington state and has bought things online, it doesn't matter where it is being shipped from, I'm getting charged for the sales tax. So this whole thing going through DC is a no change situation for me.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

As someone who also lives in Washington state, what the heck are you talking about?  You might for Amazon and some other companies that are actually based here in Washington, but you don't pay Washington sales tax to out of state companies when you buy from them online.  Or if you do, you're being bilked.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

If they charged based off where the online shop was, we would just end up seeing yet more PO Boxes opening up in Delaware where there is no sales tax.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

And the problem is?

I should elaborate on my original point. The physical nexus requirement as set by the US Supreme Court, would still apply. So if you set up a PO Box in Delaware but operate your business out of New York, you would still be required to charge New York residents the appropriate New York sales tax.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

The problem is that online companies don't just compete with other online companies based in the same state; they compete across the country (and a few internationally). So, a brick-and-mortar company in New York (which has a 7% sales tax rate) will be in direct competition with an online company based in Delaware (or any other state without sales tax). Traditionally, this was only ever an issue on the borders between states, but online stores have changed things, so all of a sudden we would start to see every online business being based out of a sales tax-free state, leaving us right back where we started, with all online purchases being tax-free. In other words, the only effect of that change would be to shift the locations of companies. We'd be better off not changing anything at all (which I'm sure you'd prefer, but it still leaves in the problem of online companies having an unfair advantage, so something else might still need to be done).

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

so all of a sudden we would start to see every online business being based out of a sales tax-free state, leaving us right back where we started, 

So are you saying that tax competition between states is a bad thing? Should we abandon all state level sales tax or pass a law that sets a uniform sales tax that all states must follow in order to prevent businesses from moving from high income tax states to low or no income tax states? Why should sales tax be treated any differently from property and income taxes?

Or perhaps you believe that any company that does business in any state in any way, now owes that state an income tax? So If I own a business that has door to door sales men, if they go to Nebraska, even though I am based in Oklahoma, then Nebraska has a claim on sales tax from me? I don't think so.

No state has a right to reach across state lines to claim taxes on out of state businesses. That is what the US Supreme Court declared when it made its physical nexus ruling. 

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

So are you saying that tax competition between states is a bad thing?

No (it's complicated, not purely good or bad). I was just pointing out that charging based on the business's location is equivalent to doing nothing.

No state has a right to reach across state lines to claim taxes on out of state businesses. That is what the US Supreme Court declared when it made its physical nexus ruling.

That's true. But the federal government is explicitly authorized by the Constitution to "regulate interstate commerce," which buying an item online from a company in another state certainly qualifies as (it's practically the definition of interstate commerce). As such, they have the authority to levy taxes on it which are distributed to the states of the purchasers. (That is, unless and until the Supreme Court rules otherwise.)

But in the end, I'm not a fan of this particular bill. I do think there's a problem with the tax asymmetry here, and the fact the it allows online retailers to avoid sales taxes, but not brick-and-mortar retailers, but solving this issue isn't trivial. It does highlight the fact that decentralized democracy isn't always the better option - if there were a unified tax code across the nation, this wouldn't be an issue at all, but we have to work with what we have.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Unfortunately the physical nexus requirement is a lot looser then people tend to think, esp for companies that know how to draw up the paperwork.

On the whole I do consider the tax issue a problem.  I know we like cheap stuff, but at the end of the day companies that operate online have a tax advantage that brick and mortar companies do not since the laws that are supposed to level the playing field are so widely ignored that they essentially do not exist.

This is where things kinda split between 'what is good for me' and 'what is good for the economy'.  Lower costs via online buying benfit me personaly, but weakening local economics are a problem that while it is less direct WILL eventually hurt me personally again.  The problem is most people can not think past one or two degrees and can be rather short sigted.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

Unfortunately the physical nexus requirement is a lot looser then people tend to think, esp for companies that know how to draw up the paperwork.

I assume you are referring to Amazon with its practice of gaining sales tax free status in order to place shipping centers in certain states. While I personally feel that is bad state policy, much in the same way as I view any act of crony capitalism, it is a fair business decision. The states weighed the pros and cons and made a decision.

 I know we like cheap stuff, but at the end of the day companies that operate online have a tax advantage that brick and mortar companies do not since the laws that are supposed to level the playing field are so widely ignored that they essentially do not exist.

Believe it or not, but sales tax has very little to do with why goods are cheaper online than in stores. The majority of what I buy online is either not found locally or is so much cheaper that even with an online business charging me sales tax, I will still be saving money overall.

This is where things kinda split between 'what is good for me' and 'what is good for the economy'.  Lower costs via online buying benfit me personaly, but weakening local economics are a problem that while it is less direct WILL eventually hurt me personally again.

What is good for me is also good for the economy. If local businesses want my business, then they need to compete. Forcing unnecessary or artificial barriers and roadblocks on competitors is not competing. Offering compelling goods and services and reasonable rates is competing. If they cannot do that, that is not Amazon's or any other online business' fault. 

Changing markets have been a problem that economies of all sizes have faced over and over again in history. Those that adapt to those changes survive and those that fail to adapt die. That is a fact of economics. Fighting change will never work in the long run. 

That is what this "Marketplace Fairness Act" is. Fighting change. If this law passes, you will kill small businesses. Those business big enough will either relocate out of the country to avoid the burdensome regulations, or they will lobby to pass more regulations to kill smaller competitors, much like Amazon is doing. That will kill the economy.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

If I thought calling my congress person and threatening them with the loss of my vote would help, I would.  These days the only situation where I believe 1 man can make a difference is if that man has more money than the person they are attempting to influence.  

But if it's any consolation, I do agree with you.

Re: Harry Reid's Internet Tax Bill Easily Passes in the Senate

"It also doesn't help that the one man a lot of Republicans listen to - Grover Norquist from Americans for Tax Reform."

Grover Norquist what? I don't think that's a complete sentence.

---You are likely to be eaten by a Grue.
 
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