An internet sales tax mandate was approved by the Senate on Friday in a symbolic, yet important, victory. The bill was supported by advocates who want to help states collect taxes on internet sales.
The Senate voted 75-24 for the nonbinding measure that endorsed giving states the power to collect existing sales taxes on purchases made online from an out-of-state company.
While the vote isn’t a proclamation that an internet sales tax will be mandated, its bipartisan support shows hope that supporters of collecting taxes online could prevail if the Senate chooses to consider a binding legislation later on.
A binding agreement would be significant, because an estimated $20 billion in sales taxes go uncollected each year because of purchases made from out-of-state online merchants. Supporters of the agreement also argue that not collecting the levies puts retail stores at a competitive disadvantage, because they still have to collect local sales taxes.
Senator Richard Durbin (D-IL) is one of the bill’s supporters. He believed that internet sales taxes should be collected in all instances “so those local businesses will have a fighting chance” against online retailers. Along with Durbin, Senators Mike Enzi (R-WY) and Lamar Alexander (R-TN) were also chief sponsors.
Current internet retailers have a mostly tax-free existence because of a 1992 Supreme Court Case, Quill Corp. v. North Dakota. The ruling declared that companies that don’t have a “substantial nexus” in a particular state didn’t have to pay sales tax. Quill’s case became seminal for online retailers. Essentially, it meant that they didn’t have to pay any state or local taxes.
Along with undercutting traditional retailers, it has also meant that governments have lost a significant amount of potential revenue from online commerce. However, there are some exceptions. Amazon charges sales tax to consumers in California. They will also soon charge residents in Massachusetts and Connecticut.
It is not clear if the Senate will consider a binding measure for internet sales taxes.
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