The Senate on Wednesday advanced a bill to tax Internet purchases despite the objection of a bipartisan group of lawmakers who say the legislation will hurt the critical small-business sector.
Senators voted 75-22 to advance the Marketplace Fairness Act, which would allow states to collect sales taxes from Internet retailers.
Opponents, many of them from the five states that do not have a sales tax, said the legislation pits "brick and mortar" stores against "brick and click" Internet businesses. Supporters say expanding the sales tax to the Internet will level the playing field and discourage the practice of "showrooming," in which shoppers peruse retail shops for items they then buy online for less.
"We support the notion of Internet freedom, but what we are trying to achieve is the appropriate role for the Internet when it comes to retail sales," said Sen. Richard Durbin, D-Ill., a sponsor of the bill.
The bill would give states the power to require large online retailers -- those with sales of $1 million or more -- to collect the sales tax, even when the seller and buyer are in different states. Current law requires online retailers to collect taxes only in states where they have a physical presence.
Senators supporting the bill are eager to increase state sales tax revenue, which has dropped by billions in some states because increasingly popular Internet retailers aren't paying.
In Virginia and Maryland, officials are counting on Congress to pass the online sales tax. Both states intend to use the new tax revenue to pay for roads, and if it fails on Capitol Hill, residents will be paying even more for gas.
The bill is particularly attractive to states with no income tax that rely primarily on sales taxes.
"Our citizens have no income tax," said Sen. Bob Corker, R-Tenn., another sponsor of the legislation, "And they want to keep it that way. What eventually could happen in our state is we could have to move to an income tax."
Opponents include Sens. Ron Wyden, D-Ore., and Kelly Ayotte, R-N.H., who represent states that do not collect sales taxes. They argued that the legislation would create a massive burden for small businesses that are ill-equipped to become tax collectors.
"This debate is about the little guy, small businesses," Wyden said. "There are people who don't have a physical presence all over the country, and they are scratching their heads this afternoon, saying, 'How in the world are we going to be able to comply with this?' "
Ayotte called the legislation "an administrative nightmare" for small Internet retailers.
The bill's most prominent opponent is Senate Finance Committee Chairman Max Baucus, D-Mont. Baucus wanted the sales tax bill to come through his committee so he could offer changes to it, but Senate Majority Leader Harry Reid, D-Nev., leapfrogged the committee process and brought the bill straight to the chamber floor on Monday.
"Businesses will be forced to spend their time and money collecting taxes from states across the country with no benefit to them," Baucus said. "This bill is not thought through. This floor is no place to try to improve upon this bill and make this bill work."