POLITICS
04/25/2013 11:31 am ET Updated Apr 25, 2013

Senate Battles Over Online Sales Tax

WASHINGTON -- Merchants, bankers, small businesses, bizarre coalitions, Dick Durbin and Mike Enzi: The Senate is re-enacting its great swipe fee battle of 2011, but this time the issue in question is whether online sellers should have to pay sales tax just as brick and mortar retailers do.

In 2011, Sens. Durbin (D-Ill.) and Enzi (R-Wyo.) teamed up in an epic Capitol Hill brawl to lower the fees merchants pay to banks for debit card transactions. Hundreds of lobbyists spent millions of dollars during the debate. The odd couple's latest issue hasn't generated quite the same amount of heat on K Street, but the lobbying has been intense.

Much like the swipe fee fight, the battle over online sales taxes is a window into how the congressional agenda is set not by public priorities -- unemployment remains painfully high, after all -- but instead by powerful interests looking to game a slight advantage against a competitor. A small business or consumer has a fighting chance in Washington if their interest happens to align with the goal of a powerful corporate coalition.

As one moderate Democratic senator put it during the swipe fee fight, "I'm surprised at how much of our time is spent trying to divide up the spoils between various economic interests. I had no idea. I thought we’d be focused on civil liberties, on education policy, energy policy and so on."

"The fights down here can be put in two or three categories: The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards," the senator said, requesting anonymity so as not to alienate any of the bastards, regardless of size.

The Durbin-Enzi bill -- known as the Marketplace Fairness Act -- is being pushed by a bipartisan coalition of state and federal leaders. Opposition has also been bipartisan, led mainly by senators from states without sales taxes. Large retailers such as Walmart and Amazon and smaller mom-and-pop stores are united in their support for the bill, while online retailers, including EBay, oppose it.

The bill comes after a 1992 Supreme Court ruling that says states can collect sales tax on catalog and online sales, but currently the consumer has to voluntarily send the tax to the state. The Marketplace Fairness Act would allow for automatic collection. A nonbinding vote in March saw 75 senators vote to include it in the budget resolution, and it could come up for a vote in the Senate as early as Thursday.

Both sides speak about the need for fairness. Supporters say the bill would even the playing field for downtown retailers, who have been losing sales to online businesses exempt from sales taxes, while opponents argue the law should be voluntary, rather than mandatory, among states. They have also argued that it would be burdensome to small businesses, forcing them to become tax collectors.

"This bill rejects the voluntary approach and says that, for example, my state is required to collect sales taxes from states thousands of miles away. It's not voluntary, it's coercive," Sen. Ron Wyden (D-Ore.), an opponent, told The Huffington Post. Oregon has no sales tax. "And when you look around the country at a number of instances, the online sector would be required to do things that brick and mortar businesses would not. It violates the principle of nondiscrimination, the principle of voluntariness."

Wyden has been in negotiations with Durbin, the Senate majority whip and a sponsor of the bill, to include the voluntary aspect to the legislation. Durbin has talked about the need to reach out to new groups as funding sources for Democrats, and he has increased his outreach to the business community, including in 2011 when he supported reducing swipe fees.

Wyden largely avoided a question about whether Durbin is using the online sales tax bill to help gain a new coalition of merchants to fund Democratic campaigns.

“I want to work with Senator Durbin, we talked twice in the last few hours and I'm hopeful we can reach an agreement that would particularly alter those two features of the bill -- the coerciveness and the discriminatory features that I think, in effect, step back from the kinds of policies that have made sense for our country and for our party,” Wyden said earlier this week.

Wyden and Senate Finance Committee Chairman Max Baucus (D-Mont.) found themselves being praised Wednesday by the Heritage Foundation, which released a video that compiled statements both made criticizing the Marketplace Fairness Act. The conservative group, which opposes the bill and has done battle with Baucus over health care issues, uses the video to showcase Democrats who oppose it as well.

Baucus, who announced his retirement this week, has been angered that Durbin and Enzi are trying to make an end run around his Finance Committee. And there is bad blood: Baucus was furious with Durbin for battling his fellow Montanan Sen. Jon Tester (D) so aggressively over swipe fees.

Bad blood may even have involved the banks in the online sales tax issue. Durbin went to war with Wall Street in 2010 and 2011 to regulate swipe fees, which the bankers surely haven't forgotten. This week, the powerful Securities Industry and Financial Markets Association, which represents big banks, found a way to enter the debate on the opposite side of Durbin. "We believe the impact of this legislation on trade in services has not been adequately explored by Congress," SIFMA president Ken Bentsen said in a statement.

On the opposite side, a variety of interests line up neatly in favor of tax collection. Michael Kercheval, the president and CEO of the International Council of Shopping Centers, said that the coalition that supports the Marketplace Fairness Act is not as bizarre as it may seem, especially the business groups. He said that while the smaller downtown retailers have seen big box stores and online outlets as competitors, in this issue, it has become a case of the enemy of my enemy is my friend.

“On the surface it looks like they are at each other's throats, but they are all retailers and need to build business,” Kercheval told HuffPost. “They have a common adversary. It is a delight to see them working together.”

Kercheval said the movement gained steam among state leaders around five years ago at the height of the recession, which saw a downturn in tax revenue. At the same time, more vacant storefronts appeared in downtowns and shopping centers, causing issues for surrounding businesses. The National Conference of State Legislatures estimates that state and local governments collectively missed out on $23 billion in sales tax revenue in 2012.

“The $23 billion in lost revenue was clearly an opening,” Kercheval said.

The goal has been to first secure passage in the Democratic-controlled Senate, home to several former governors, before moving to the GOP-controlled House.

Supporters have played up the bipartisan coalition that has assembled both on Capitol Hill and within state governments. The original bill was pushed by Enzi and former Sen. Byron Dorgan (D-N.D.) with Durbin entering the picture following Dorgan’s 2010 retirement. In the House, Reps. Peter Welch (D-Vt.), Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) have been the main sponsors.

Welch told The Huffington Post on Monday that Womack has been reaching out to House GOP leaders in an attempt to push a floor vote. Womack outlined the message he was delivering to Republicans during a December presentation to members of the National Conference of State Legislatures who were lobbying on Capitol Hill.

Womack told state lawmakers to emphasize the fact that consumers should already be paying the tax and that the Marketplace Fairness Act would allow states to collect the tax directly. He also said that the bill is actually “conservative” legislation since it promoted business and states' rights.

“It is not a new tax, it is a due tax,” Womack said in December.

Conservative state lawmakers have pushed a similar message, including Kansas state Rep. J.R. Claeys, a Republican who has been working on the issue for several years. NCSL estimates that Kansas lost $279 million in sales tax revenue from online and catalog sales in 2012. But while the bill would likely result in a windfall for his and other states, Claeys said the main reason he supported it is because it would provide more of a balance for small businesses.

Max Behlke, NCSL’s state-federal relations manager, told HuffPost that the messaging around the "due tax" and protecting small businesses has been key to gaining GOP support.

“It has always been a bipartisan coalition at the state level,” Behlke said. “It was a Democratic issue to start. Once Republicans noticed it as an inadequacy, they came on board.”

Claeys' involvement has aligned him with Kansas Democratic Party Chairwoman Joan Wagnon, a leader of the national coalition pushing the bill. Wagnon is the executive vice president of FedTax, one of six companies certified to operate the software online businesses would use to calculate and collect the sales tax. She also a former state revenue secretary.

Wagnon said the bipartisan nature of the coalition has been helpful, but she also emphasized the way in which business and government have worked together to push the issue. She said the focus has been on revenue and economic development issues, along with the prospect of simplifying state sales tax laws.

“It is the only thing I’ve been involved in where business has partnered with government,” Wagnon said.

Wagnon has sought to debunk the argument that the bill would put an undue burden on small businesses. Senate opponents, particularly those in states without a sales tax, have argued that it would force retailers to spend time being tax collectors. But Wagnon said that the FedTax system can be installed in less than an hour, and that the software company is responsible for collecting the tax and distributing it to state tax agencies, not the online retailers. She also noted that the legislation requires states to cover the cost of the software.

NCSL's Behlke said that with state lawmakers and governors looking at a shrinking revenue pool during the budget process and seeing small businesses close, it was clear that a bipartisan coalition would form around the online sales tax. He also said small business leaders have been key to getting state lawmakers on board.

“State legislators have a smaller constituency, and they hear firsthand that their businesses are being hurt,” Behlke said.

HuffPost

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