Calif. would take in billions if online sales-tax bill passes

3:09 PM, Apr 25, 2013   |    comments
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Raju Chebium
Gannett Washington Bureau

WASHINGTON -- California would get billions of dollars in additional revenue each year -- more than any other state -- if Congress passes a Republican-sponsored online sales-tax bill that has the backing of California's Democratic senators and President Barack Obama, supporters say.

But passage is not assured despite broad support for the so-called Marketplace Fairness Act in the Democratic-majority Senate, where a small but determined group of Democratic and Republican opponents are trying hard to derail the bill.

The final vote on the bill introduced by Sen. Mike Enzi, R-Wyo. -- and supported by Gov. Jerry Brown -- was supposed to take place by Friday or over the weekend. But on Thursday Senate Majority Leader Harry Reid, D-Nev., postponed the final vote until May 6 -- a sign that opponents are causing enough procedural mischief to keep things bottled up.

The measure also faces tough odds in the GOP-majority House, where tax-averse conservatives wield enormous power. The House version of the Enzi bill hasn't advanced since Rep. Steve Womack, R-Ark., introduced it in February.

Max Behlke, manager of state-federal relations at the National Conference of State Legislatures (NCSL), said the Marketplace Fairness Act would send more money to California compared to a 2011 state law, which applied only to and a handful of other e-commerce giants.

California still lost out on $4.16 billion in sales-tax revenue in fiscal 2012 just from online sales, a situation the federal bill is designed to correct, according to NCSL. The nonpartisan group found that 45 states that levy sales taxes were unable to collect a total of $24 billion from e-commerce last year.

"They will never be able to collect all the sales taxes that are owed without federal legislation," Behlke said. "Once federal legislation passes, those laws in those states really become moot."

Under the Marketplace Fairness Act, states would be able to require out-of-state Internet merchants to collect sales taxes when their residents buy anything online. customers in California have become used to paying state and local sales since September 15, 2012. But residents of other states pay only for the product and shipping costs. That will end if the Marketplace Fairness Act becomes law.

Customers in Oregon, Delaware, New Hampshire, Montana and Alaska won't be affected because those five states don't have sales taxes. But those states also won't see a dime in extra revenue if the Marketplace Fairness Act becomes law.

Nearly three-quarters of the Senate supports the bill -- a rare feat of bipartisanship in the bitterly-divided chamber.

A procedural vote to set the stage for a final vote on the proposal received 74 yes votes Wednesday, including from California Democrats Dianne Feinstein and Barbara Boxer.

In a recent speech on the Senate floor, Feinstein said she likes the bill because it would treat online merchants the same as brick-and-mortar retailers, who're required by law to collect state and local sales taxes.

"Mom-and-pop stores ... are falling victim to a practice known as 'show rooming,' where potential customers enter the physical store, take up the salesperson's time, then make their purchases at home online at a discount because no sales tax is collected," Feinstein said.

Boxer said bill is necessary because e-commerce is booming.

"As electronic commerce has grown dramatically, new policies are necessary to maintain a level playing field so that businesses of all types can compete and prosper," she said in a statement.

Critics argue that the proposal would increase the tax burden on consumers and raise online prices. Some argue it's an unnecessary government intrusion into e-commerce. Some others decry what they see as a huge burden on small businesses.

"We have all these senators . . . enforcing not only extensions of their own states' wasteful sales tax systems but imposing that upon the small businesses of Oregon," said Sen. Jeff Merkley, D-Ore.

The conservative Heritage Foundation's lobbying arm warned GOP lawmakers against voting for the bill.

"This would be a dangerous extension of state power into other states," the influential group said in a message to Congress. "Not only would it place costly burdens on retailers, but it would allow states to impose taxes in a way that favors their local businesses over out-of-state firms, who have no representation in the taxing state."

The bill seeks to overturn a 1992 Supreme Court ruling that requires brick-and-mortar retailers to comply with state sales-tax laws but exempted "remote" businesses, reasoning that the latter would find it too hard to comply with myriad state tax laws.

The bill has divided the business community, with small businesses going up against large businesses and online-only retailers against brick-and-mortar businesses.

The Senate bill would exempt sellers with less than $1 million in out-of-state sales a year from collecting state sales tax. Ebay, one of the bill's largest opponents, wants businesses with fewer than 50 employees, or those with up to $10 million in sales to be exempt.

Contributing: USA Today

Gannett Washington Bureau

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