WASHINGTON - States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the U.S. Senate Monday.
Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers a big advantage over brick-and-mortar stores.
The bill would allow states to require online retailers to collect state and local sales taxes for purchases made over the Internet. The sales taxes would be sent to the states where shoppers live.
The Senate voted 74 to 20 to begin debating the bill. If that level of support continues, the Senate could pass the bill as early as this week.
Supporters say the bill is about fairness for businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.
"I believe it is important to level the playing field for all retailers," said Sen. Mike Enzi, R-Wyo., the bill's main sponsor. "We should not be subsidizing some taxpayers at the expense of others."
In many states, (including Arizona), shoppers are required to pay unpaid sales tax when they file their state income tax returns. However, states complain that few people comply.
"I do know about three people that comply with that," Enzi said.
President Obama supports the bill, but its fate is uncertain in the House, where some Republicans regard it as a tax increase. Heritage Action for America, the activist arm of the conservative Heritage Foundation, opposes the bill and will count the vote in its legislative score card.
Many of the nation's governors - Republicans and Democrats - have been lobbying the federal government for years for the authority to collect sales taxes from online sales.
Amazon.com agreed under pressure to start collecting sales tax this year on items ordered by its Arizona customers. It did so to settle a $53 million assessment against it by the Arizona Revenue Department for unpaid sales taxes.
Online retailers have been able to escape collecting sales taxes because of a 1992 U.S. Supreme Court ruling that states can demand the money only if a company has a "physical presence" in the state. Amazon has distribution warehouses in Arizona.