Republican lawmakers called on the Senate Democratic leadership Tuesday not to tie a bill that would allow states to impose Internet sales taxes with a separate bill extending a ban on Internet access taxes.
The access tax and the sales tax are separate issues, the Republicans argued, and if the Senate does try to combine them, the House would oppose that.
“Speaker Boehner, R-Ohio, has been very clear these two issues would be detached if they arrived at the House connected,” said Rep. Steve Daines, R-Mont., during an anti-Internet sales tax press conference Tuesday.
Senate lawmakers introduced legislation in July called the Marketplace and Internet Tax Fairness Act that ties renewing the access tax ban, which is set to expire on Dec. 11, with legislation allowing states to force online merchants to collect and remit state and local sales taxes. The current lame-duck session would be the last chance to pass it.
The bill’s sponsors are banking on the idea that access taxes — fees applied to logging on with a service provider — are the less popular of the two, and that reluctant lawmakers will nevertheless swallow the pro-sales tax provisions to keep access tax-free.
Should the Senate pass and the House reject a combined bill, on the other hand, the access tax ban might end up lapsing.
If that were to happen, it would almost certainly be renewed next year by the incoming GOP-controlled Congress. However, that would still result in an interim period of several weeks, during which consumers could potentially be hit with access taxes.
Daines, who will be Montana’s junior senator in the next Congress, declined to say whether he would be willing to allow the access tax ban to temporarily expire to hold off sales tax legislation. “We’ll wait and see what happens. My primary goal is to see that the [Internet sales tax] doesn’t pass.”
The Senate Democratic leadership endorses the idea of combining the issues — Majority Whip Dick Durbin, D-Ill., is a co-sponsor of the Marketplace and Internet Tax Fairness Act — but has not indicated how it will proceed in the lame-duck session. Durbin and Senate Majority Leader Harry Reid’s offices did not respond to requests for comment.
Backers of sales tax legislation are nevertheless optimistic. “Our supporters in the Senate are sincere in their desire to resolve this sales tax loophole this Congress. We remain hopeful that sales tax fairness legislation will move in the lame duck. Our members want this issue resolved before another holiday shopping season,” said National Retail Federation spokesman Stephen Schatz.
Pete Sepp, president of the National Taxpayers Union, which opposes taxes on both Internet access and sales, says that the strategy of the pro-sales tax side is partly to sow confusion by combining two separate issues that nevertheless sound very similar. “I have a hard time myself explaining it in radio interviews,” he said.
Internet access taxes were first banned in 1998 under the Internet Tax Freedom Act, and the ban has been renewed three times since, most recently in 2007. Eight states that had access taxes in place before 1998 — Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington and Wisconsin — were grandfathered in under the bill.
Over the same period, a coalition of state and local governments and traditional “brick and mortar” merchants have been trying to create a national online sales tax collection system.
Most versions of the idea would require consumers to pay sales taxes to their home states anytime they buy something from Amazon or any-other web-based retailer. Advocates of the system argue the online merchants are unfairly evading these taxes and getting a competitive advantage over traditional merchants. NRF claims that states now lose $25 billion in revenue annually.
The coalition’s efforts have been stymied by the Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which said that Congress must first pass legislation allowing states to do this, something it has yet to do. Opposition in Congress is primarily Republican, though there are strong Democratic opponents as well, such as Oregon Sen. Ron Wyden. Critics argue that allowing online sales taxes would unfairly burden consumers and smaller merchants.
“This a burden that would be directed to the little guy, and we ought to stand together to protect that little guy,” said Sen. Ted Cruz, R-Texas, at the Tuesday press conference.
The pro-sales tax side has nevertheless kept the pressure up and have allies on both sides in Congress, too. Last week, NRF announced that it would mount a lobbying blitz and spend “six figures” on ads aimed at getting lawmakers to pass the Marketplace and Internet Tax Fairness Act or something similar in the post-election lame-duck session.
Their urgency is because the odds of getting anything through Congress next year will be even dimmer. While the Senate passed an Internet sales tax-only bill called the Marketplace Fairness Act last year on a bipartisan 69-27 vote, nine of the lawmakers who backed it have either retired or been defeated, meaning the legislation might not have a filibuster-proof majority next year. That’s assuming that incoming Senate Majority Leader Mitch McConnell, R-Ky., who was one of the 27 who voted against the bill, would even allow a vote.
