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Marketplace Fairness Act, Bill To Tax Online Sales, Moves Toward Senate Vote

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Senate Majority Whip Dick Durbin (D-Ill.) is supporting legislation to collect sales tax on online purchases. (Photo by Chip Somodevilla/Getty Images)
Senate Majority Whip Dick Durbin (D-Ill.) is supporting legislation to collect sales tax on online purchases. (Photo by Chip Somodevilla/Getty Images)

WASHINGTON -- The U.S. Senate is expected to open debate Monday evening on a bill that would allow for the collection of sales taxes on items bought online, pushing forward legislation that is pitting state leaders and businesses in support of the measure against conservatives and senators from states with sales taxes.

Monday's expected vote follows a nonbinding vote in March in favor of including the online sales tax legislation in the 2014 budget resolution. A bipartisan group of 75 senators voted in favor of the legislation, which has blurred party lines. The bill -- known as the Marketplace Fairness Act -- would enable businesses to collect sales tax on online purchases and send them to the state where the buyer resides. A 1992 Supreme Court decision allows for the tax on online sales, but only if the purchaser voluntarily sends the tax to his or her state tax agency. The issue is a top priority for cash-strapped state and local governments nationwide, with the National Conference of State Legislatures estimating that states collectively lost $23.3 billion in sales tax revenue in 2012 due to online sales.

"The tax is due and there needs to be a method for collection," Kansas state Rep. J.R. Claeys (R-Salina), who has been working on the issue for a number of years, told The Huffington Post. "It is a good step in the right direction. Our Main Street businesses should not be at a government-sponsored disadvantage."

Claeys and supporters of the bill have been painting the legislation as a measure that would help retailers by stopping customers from using stores as showrooms and then buying online to avoid paying sales tax. During Senate discussion Monday afternoon, Senate Majority Whip Dick Durbin (D-Ill.) and Sen. Mike Enzi (R-Wyo.) both cited the impact of online sales on non-chain stores in their states.

Opponents of the legislation have said that it would actually harm small business. During the March debate on the budget resolution, Sen. Kelly Ayotte (R-N.H.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) both said that the legislation would turn small businesses into tax collectors and put them in a position of having to purchase software to calculate sales taxes. This week's debate is proceeding without the legislation having gone through the Senate Finance Committee, a step for which Baucus has pressed since the bill relates to tax policy.

Supporters of the bill have noted that businesses that have under $1 million in annual revenue would not need to collect the tax, an aspect of the measure that critics oppose. Phil Bond, the executive director of We R Here, a group dedicated to stopping the legislation, told HuffPost that the threshold for which businesses would be exempted is too low. Bond noted that other federal agencies define small businesses at a higher revenue, saying that most online small businesses -- even over $1 million in annual revenue -- operate at a low-profit margin and cannot implement multiple software programs.

"That is why the home schoolers came out against it," Bond said, noting that many home-school students operate online businesses. He also noted opposition from arts and crafts sellers.

The push for the legislation has also attracted a diverse group, including the National Governors Association, the National Conference of State Legislatures, Walmart and Amazon, along with a coalition of Democrats and Republicans. EBay launched an effort over the weekend to oppose the bill, including emailing 40 million EBay users to become involved.

Supporters told HuffPost that this week's goal is to keep the Senate vote as close to the 75-count from the March vote as possible in order to build momentum going into the House of Representatives, and to block any "poison pill amendments" from senators. Rep. Peter Welch (D-Vt.), a sponsor of the bill, told HuffPost that the measure has strong support in the House, including from conservative Republicans, and the aim is to build on that. A main argument will be that the federal government should not be blocking state tax operations, and that the tax is already in place, but it is not being collected.

"As it becomes more likely to pass, all of us in the House will be more likely to hear from our local legislators and governors," Welch said. "Clearly that got momentum in the Senate."

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