WASHINGTON -- States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the Senate on Monday.
Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers a big advantage over brick-and-mortar stores.
The bill would allow states to require online retailers to collect state and local sales taxes for purchases made over the Internet. The sales taxes would be sent to the states where shoppers live.
The bill pits brick-and-mortar stores like Wal-Mart against online services such as eBay (EBAY). The National Retail federation supports it. Amazon, which initially fought efforts in some states to make it collect sales taxes, supports it, too.
On the other side, San Jose-based eBay has been rallying customers to oppose the bill.
"I hope you agree that imposing unnecessary tax burdens on small online businesses is a bad idea," eBay president and CEO John Donahoe said in a letter to customers. "Join us in letting your members of Congress know they should protect small online businesses, not potentially put them out of business."
The Senate, however, voted 74-20 to begin debating the bill. If that level of support continues, the Senate could pass the bill as early as this week.
Supporters say the bill is about fairness for businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.
"I believe it is important to level the playing field for all retailers," said Sen. Mike Enzi, R-Wyo., the bill's main sponsor. "We should not be subsidizing some taxpayers at the expense of others."
President Barack Obama supports the bill, but its fate is uncertain in the House, where some Republicans regard it as a tax increase.
Many of the nation's governors -- Republicans and Democrats -- have been lobbying the federal government for years for the authority to collect sales taxes from online sales, said Dan Crippen, executive director of the National Governors Association. Those efforts intensified when state tax revenues took hit from the recession and the slow economic recovery.
"It's a matter of equity for businesses," Crippen said. "It's a matter of revenue for states."
But Sen. Dick Durbin, D-Ill., said the bill requires participating states to make it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes, based on where shoppers live. States must also establish a single entity to receive Internet sales tax revenue, so retailers don't have to send them to individual counties or cities.
"We're way beyond the quill pen and ledger days," Durbin said. "Thanks to computers and thanks to software it is not that complex."