Measure to tax Internet sales dead

No bill allowing the taxation will be taken up before Congress’ lame-duck session ends, meaning that purchases made through online merchants such as Amazon will continue to be tax-free for the foreseeable future.

A coalition made up of state and local government groups and traditional “bricks and mortar” retailers had hoped that legislation forcing online retailers to collect and remit sales taxes could be passed this year. Their plan was to tie it to different, broadly popular legislation that would extend a moratorium on Internet access taxes — levies on customers of Internet service providers such as Comcast or Verizon. The current moratorium expires on Thursday.

Those plans have fallen apart, though, costing sales-tax advocates the main leverage they had to win over wavering lawmakers. Instead, the moratorium will be extended as part of a catch-all spending bill Congress is expected to pass this week to keep the government open temporarily.

“The access tax moratorium is going to be extended with the omnibus budget bill,” a Senate aide on the pro-sales tax side told the Washington Examiner. The moratorium will be extended only for the term of the omnibus spending plan, which will expire at the end of the government’s fiscal year on Sept. 30. “This will to allow us to continue to have the discussion about how best to proceed next year,” the aide said.

Stephen Schatz, spokesman for the National Retail Federation, the main group lobbying for sales tax legislation, said the federation had not given up hope for this year but conceded it was looking increasingly likely that it would have to wait until the new Congress convenes next year.

“There is strong bipartisan support for sales tax fairness legislation in the House and Senate, and we remain hopeful that Congress will address this retail industry priority, be it this session or next,” Schatz said.

Critics of Internet sales taxes said the clock had simply run out. “[The issue] is dead for this Congress no matter how you look at it. There is must-pass legislation on the table and the House will definitely not take up [a sales tax bill],” said Katie McAuliffe, federal affairs manager for the Americans for Tax Reform.

The odds for sales tax legislation will be even longer next year, McAuliffe noted, because Sen. Mitch McConnell, R-Ky., the incoming majority leader, opposes the move. The Republicans will keep control of the House, where Speaker John Boehner, R-Ohio, is also an opponent. “I think Congress will be even more hostile to the idea,” she said.

Ever since the Internet took off in the late 1990s, state and local government groups have sought ways to collect sales taxes from online purchases, saying they are losing large amounts of tax revenue as sales have migrated online. The NRF puts the figure at $25 billion annually. Retail groups complain the status quo gives their online competitors an unfair advantage. The groups maintain that under current law consumers are obligated to pay sales taxes to state and local governments. However, there is no way for them to enforce it.

In 1992, the Supreme Court said that because of the Constitution’s interstate commerce clause Congress would have to pass legislation giving states and local governments explicit permission to collect taxes on online sales. Congress has refused to do so.

For many lawmakers, opposing Internet taxes is a populist cause. They argue that taxes would stifle the growth of the Internet as well as harm consumers, especially in the slowly improving economy.

Sales tax advocates came close to their goal during the current Congress. A bill called the Marketplace Fairness Act passed the Senate in May 2013, by a 69-27 vote. The House never took it up, but advocates were hoping that attaching it to an extension of the access tax moratorium would give them sufficient leverage. The combined bill would have allowed sales taxes while preventing access taxes. That would have forced the critics to choose which one they opposed the most.

Opponents of online sales taxes didn’t budge, however, saying they were willing to let the access tax moratorium expire to prevent sales taxes. The critics noted that if the moratorium did expire it would only be temporary, since the incoming Republican-controlled Congress would be certain to reinstate it early next year. The critics also warned that Congress would be hit with a backlash from voters if they suddenly had to pay the taxes.

Nine of the senators who voted for the Marketplace Fairness Act were defeated in last month’s election or are retiring, so the post-election lame-duck session was the last chance proponents had for the legislation before the Republicans take over.