The tax-free Internet may soon be no more. Yesterday, the United States Senate voted 74-20 to begin debate on the Marketplace Fairness Act (S. 743), a law that would require Internet-based businesses such as Amazon to collect sales taxes from all its customers.
Under current law, sales tax is only collected if a seller has a physical presence (such as an office or warehouse) in your state. The new law would require all online purchases you make to be taxed at your local rate and remitted to your local tax authority. Companies and individuals with less than $1 million in yearly out-of-state sales would be exempt from having to collect taxes on Internet sales.
The tax-free Internet may be a victim of its own success. Past efforts to tax online sales met fierce opposition from companies like Amazon who built their empires on tax-free sales. But as Amazon expands and builds warehouses in more states, the tax loophole has fallen out of favor as something that disproportionately benefits its competition. State lawmakers, meanwhile, view a tax on Internet sales as a solution to widening budget gaps – it could raise as much as $24 billion in new revenue.
The bill has bipartisan support, winning backing from key conservatives and liberals. President Obama announced that he would sign the bill to “level the playing field for local small business retailers.” Opposition comes largely from conservative anti-tax organizations such as the Heritage Foundation. Senators from states that do not collect sales taxes are also largely opposed.