Tax-Free Internet Sales Poised to Become a Thing of the Past

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I’ve written once or twice before about Amazon’s scorched-earth policy against being forced to collect state sales taxes, and also about its eventual cave-in to California legislators who demanded that they collect sales taxes whether they wanted to or not. At the time, Amazon’s excuse for fighting over this was its supposed belief in fair play: they took the position that Congress should pass a federal law that sets a single nationwide standard, either exempting everyone from internet sales taxes or requiring everyone to pay. I was unimpressed:

It would actually be nice to have a federal law on this issue. But I sure don’t see how we can get one. States would go ballistic if a federal law upheld the general exemption of internet retailers from collecting sales taxes, and there doesn’t seem to be any path through the Senate for such a bill. On the other hand, the anti-tax jihadists would burst a vein if Congress passed a law that effectively increased taxes by putting e-tailers on a level playing field with brick-and-mortar stores, and the House is controlled by the anti-tax brigade. So there’s deadlock.

But maybe it’s not so impossible after all. In the 1992 Supreme Court decision that prohibited states from forcing companies to collect state sales taxes unless they had a physical presence there, the Court specifically said that its prohibition was based solely on Commerce Clause issues. Thus, “Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.” For the next two decades, Congress declined to take up this offer, but during that time internet sales grew exponentially and states grew ever more jittery about the amount of tax revenue they were losing. What’s more, Amazon grew big enough that they were having a harder time avoiding state sales taxes, as their 2011 California cave-in demonstrated. Suddenly, instead of opposing a federal law, Amazon supported one. If they had to collect sales taxes, they were better off if everyone else had to collect them as well.

A bill to authorize this has been quietly wending its way through the Senate for the past year or so, and Brad Plumer informs me today that it might be up for a vote as soon as this afternoon. Needless to say, Grover Norquist is opposed, and this has made it hard to get Republican votes. On the other hand, the bill is cosponsored by Sen. Mike Enzi, the fourth most conservative senator in the country and a guy with a 90 percent rating from Norquist’s own lobbying group, Americans for Tax Reform. That’s brought quite a few Republicans into the fold.

Long story short, it turns out that the Senate is indeed poised to pass something useful. How about that? Not quite this afternoon, though: cloture was invoked this afternoon and passed, which means passage of the bill is assured too, but not until it comes up for debate later in the week. Next stop: the House of Representatives, where we’ll find out if Norquist’s grip is tighter than it is in the Senate.

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