Senators think they have solved the Internet sales tax problem

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After years of trying to figure out how to force Internet companies to collect sales taxes on their purchases, Sen. Lamar Alexander (R-Tenn.) thinks he and a bipartisan group of senators finally have hit on the right solution.

Alexander joined Sens. Mike Enzi (R-Wyo.) and Dick Durbin (D-Ill.) on Wednesday to introduce federal legislation that would enable states to more easily collect sales taxes for online purchases made by their residents. They are among a group of 10 senators -- five Republicans and five Democrats -- co-sponsoring the Marketplace Fairness Act.

‘If I were president of an online retailer...I would look at this week in Washington, D.C., and I’d make my plans to start collecting sales taxes wherever I sold things in the United States,’ Alexander said.

He predicted the legislation, which would give states the option of collecting sales taxes from online retailers with annual sales above $500,000, would pass Congress. The bill is similar to legislation already introduced in the House.

‘I think we’ve finally found that sweet spot,’ Durbin said.

The bill has drawn support from conservatives, including the American Conservative Union, because it leaves it up to each state to decide whether they want to collect the sales tax. And the nearly solid wall of opposition from online retailers has cracked, as Amazon.com Inc., the giant Internet retailer, has backed the proposed legislation.

Enzi said existing law, which requires consumers to voluntarily pay sales taxes for online purchases, costs state and local governments about $23 billion annually.

The legislation come as states have been trying to solve the problem on their own. California has enacted legislation requiring online retailers with subsidiaries in the state to collect sales tax from California customers.

Amazon, which has fought such efforts in other states, had threatened to launch a referendum battle over the California law. But last month, Amazon agreed to begin collecting the taxes starting in September 2012.

Amazon said Wednesday it ‘strongly supported’ the Senate legislation. Alexander, Durbin and Enzi cited Amazon’s support as an indication the proposal would not endanger online retailers.

The law would allow states to become part of a group of 24 states that have adopted a streamlined system to reduce the complications for retailers in figuring out a customer’s exact sales tax. The law also would allow states to collect taxes on their own if they adopted some simplification requirements.

‘It’s about closing a tax loophole,’ Alexander said. ‘It’s about stopping the subsidization of some businesses over others.’

But some high-tech groups, along with online auction site eBay, said they oppose the legislation.

“This is another Internet sales tax bill that fails to protect small-business retailers using the Internet and will unbalance the playing field between giant retailers and small-business competitors,’ said Tod Cohen, eBay’s vice president for government relations. ‘It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”

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-- Jim Puzzanghera