US Senate OKs Internet sales tax collection

This photo taken May 2, 2013, shows Sarah Davis and Ben Hemminger, co-owners of Fashionphile.com, posing in the lobby of their Carlsbad, Calif. office.  The Internet company sells rare, vintage, and discontinued previous owned bags and is facing the complicated task of dealing with new state regulations on Internet sale taxes. (AP photo/Lenny Ignelzi)
This photo taken May 2, 2013, shows Sarah Davis and Ben Hemminger, co-owners of Fashionphile.com, posing in the lobby of their Carlsbad, Calif. office. The Internet company sells rare, vintage, and discontinued previous owned bags and is facing the complicated task of dealing with new state regulations on Internet sale taxes. (AP photo/Lenny Ignelzi)

Legislation that would allow states to collect sales taxes on Internet purchases received U.S. Senate approval Monday. It next moves to the U.S. House, where the bill is expected to face tougher competition.

The bipartisan legislation passed on a 69-27 Senate vote and is backed by box-store retailers and some major online companies like Amazon.com, which now charges sales taxes. They argue they are at a disadvantage to online businesses selling items cheaper because state and local sales taxes usually are not applied.

Critics contend the “Marketplace Fairness Act” legislation is an effective tax increase on average Americans and the bill is an unfair extension of local laws onto global Internet commerce.

Louisiana U.S. Sens. Mary Landrieu, a Democrat, and David Vitter, a Republican, are divided on the issue, with Landrieu co-sponsoring the bill and arguing it helps level the playing field for businesses and Vitter pointing out it will cost many people more in taxes.

The legislation has the support of President Barack Obama.

The nonprofit National Conference on State Legislatures, which backs the bill, estimates $23 billion of sales tax revenue nationwide is not collected and remitted by Internet vendors; in Louisiana, an estimated $808 million of state sales tax revenue goes uncollected annually.

Gov. Bobby Jindal also opposes the legislation, saying he is against any net tax increases on Louisiana residents.

Brian Redman, an owner and general manager of Red Stick Sports in Baton Rouge, said he is hopeful the bill will become law.

“It’s probably past due,” Redman said Monday. “It (current law) puts local businesses at a disadvantage because people can buy online out of state. They’re supposed to report it on their taxes, but they never do.”

John Burns, owner of Christian Street Furniture, which has locations in Baton Rouge, Metairie and Lafayette, said making online retailers collect sales taxes on purchases will level the playing field.

“All of our customers pay sales tax on what they buy from us; it’s not fair that someone isn’t collecting taxes,” he said.

Along with taking away an advantage some online retailers have, Burns said collecting taxes on online sales could help states that face budget shortfalls. “With as much money in sales taxes that isn’t being collected, maybe it could help balance the state budget,” Burns said.

Bill Pizzolato, co-owner of Tony’s Seafood on Plank Road in Baton Rouge, said the potential for collecting sales taxes won’t have much of an effect on his business. While Tony’s does ship everything from boiled crawfish and fresh catfish to boudin balls and seafood boil, Pizzolato said that doesn’t account for a significant portion of his business.

“What we do online is way less than 3 or 4 percent of our total sales,” he said. “It’s not a big, big factor.”

Pizzolato said any potential change in the law could have an effect on small businesses, since they will be required to collect sales taxes on everywhere they ship to. That will mean headaches as they deal with different rates for each parish or county and city, he said.

Landrieu said in prepared statement: “Whether they’re on Government Street in Baton Rouge, Magazine Street in New Orleans, or MacArthur Drive in Alexandria, our retailers and small businesses should not be put at a disadvantage against out-of-state, online companies.”

“I’m very sympathetic to the fairness argument of retail store owners. But overall, this will be an effective tax increase on Louisiana and put a big burden on many smaller businesses that would have to deal with thousands of different taxing jurisdictions around the country with their own sales tax rates, with some rates changing every year,” Vitter said.

The legislation is expected to have a tougher fight in the GOP-led House with similar arguments.

“As someone who fights to help families and small businesses compete, I have serious concerns with the Senate bill in its current form because it represents thousands of dollars in higher taxes on the back of every Louisiana family,” U.S. Rep. Steve Scalise, R-Jefferson, said in an email response. “That’s not the way to create a healthy economy.”

The slightly tweaked Marketplace Fairness Act would give states the option to require the collection of sales and use taxes by out-of-state sellers.

The bill exempts retailers who have out-of-state sales of $1 million or less. That’s up from $500,000 in past bills, a change made to avoid burdening small retailers with having to collect the tax.

U.S. Sen. Ted Cruz, R-Texas, futilely tried to continue to block the bill on Monday through procedural measures under the taxation issue and the argument that the bill hurts the entrepreneurial spirit of newer online businesses.

“We shouldn’t be taxing the Internet, period,” Cruz said.

Senate Majority Leader Harry Reid, D-Nev., called Cruz a “schoolyard bully” during one tense exchange shortly before voting.

The bill would overturn a 1992 U.S. Supreme Court decision that found states cannot reach beyond their borders and require out-of-state Internet vendors to collect the sales and use tax owed by state residents and businesses.

Advocate business writer Timothy Boone contributed to this report.