Senate delays vote on Internet sales tax until May

The new schedule for the bill comes after a week of the Senate in standstill

The U.S. Senate has delayed a vote on an Internet sales tax until May, after a handful of senators blocked lawmakers from voting on the legislation this week.

The Senate will again take up debate on the Marketplace Fairness Act after May 6, Senate Majority Leader Harry Reid, a Nevada Democrat, announced late Thursday. The bipartisan bill, supported by more than 70 senators, would allow states to collect sales tax on large Internet sellers that have no presence within their borders, curtailing the ability of Internet shoppers to avoid sales tax.

Senators had come to an agreement on the bill Thursday, Reid said, but he didn't offer details. Representatives of bill sponsors Senators Mike Enzi, a Wyoming Republican, and Dick Durbin, an Illinois Democrat, didn't immediately return messages seeking comment on the agreement. Neither did a spokesman for Senator Ron Wyden, an Oregon Democrat and one of the most vocal critics of the bill.

Supporters of the bill had hoped for a vote this week.

Wyden and Senator Max Baucus, a Montana Democrat, brought the Senate to a standstill during the week by objecting to any amendments offered to the bill. Backers of the bill refused to move on to other business, and opponents refused to let the bill move forward.

Just five states do not levy sales taxes. Residents of all the other states are required to report website and catalog purchases and pay sales tax, but many people don't know of these requirements and they are largely ignored.

Supporters of the Marketplace Fairness Act say the current situation is unfair to brick-and-mortar retailers, which have to charge a 5 percent to 10 percent sales tax on their products, while many Internet sellers do not. States with sales taxes are missing out on an estimated US$23 billion in tax revenue because a 1992 Supreme Court ruling prohibits states from collecting sales tax from sellers that have no physical presence within their borders.

Critics say the bill would place costly tax-collection burdens on small Internet sellers, even though the bill requires participating states to provide free tax collection software to retailers. The bill would exempt businesses with less than $1 million in annual Internet sales from collecting the sales taxes.

The bill could slow the growth of e-commerce, one of the few growing segments of the U.S. economy, and it would force businesses to collect taxes in states where they have no operations or influence, critics have said.

Wyden and other critics have suggested the bill would drive U.S. shoppers to buy from foreign websites that may avoid collecting sales taxes for U.S. states.

If the bill comes to a final vote in the full Senate, it is likely to pass. The Senate on Monday voted 74-20 to close debate and move to a final vote on the bill. However, late Thursday, another cloture vote picked up only 63 yes votes, while 30 senators voted no.

The legislation faces an uphill battle in the House of Representatives, where tax-averse Republicans hold the majority.

In recent days, several conservative groups, including the FreedomWorks Foundation, have stepped up lobbying against the bill, saying it would, in essence, mean a tax increase for Internet shoppers. Several tech trade groups also oppose the bill, while retail trade groups, Amazon.com, and the Consumer Electronics Association support the bill.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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Tags U.S. SenateHarry Reide-commerceRon WydenDick DurbinlegislationgovernmentMike EnziMax Baucusinternet

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