Senate Passes Online Sales Tax – House in Doubt

The U.S. Senate Monday voted 69 to 27 to pass legislation allowing states to require online retailers to collect sales tax whether or not they have a physical presence in the state.

And, it probably doesn’t matter. At least not for now. The Senate is one thing. The House of Representatives is another. So far, the House is showing no enthusiasm for the bill according to The Wall Street Journal. House leaders have not scheduled any hearings or votes on the measure to date.

Many House lawmakers say they are concerned about the plight of brick-and-mortar retailers who feel they are at a disadvantage when pitted against out of state online retailers who have a 6 to 7 percent pricing advantage based on the fact they don’t have to collect sales tax at the time of the transaction.

Matthew Shay, chief executive of the National Retail Federation, a trade group and leading advocate of the bill said, "The House and the Senate are different institutions, and that's going to dictate that we have different kinds of conversations."

Advocates and opponents are certainly having “different kinds of conversations.” Anti-tax groups, like Americans for Tax Reform are against the legislation, which it says is nothing more than a tax increase.

FreedomWorks, another opponent, is organizing an online letter-writing campaign against the legislation. FreedomWorks president Matt Kibbe said, "This is a real test of basic principles. You're not just talking about providing more revenue to big government, you're talking about creating a new infrastructure to expand the general powers of government."

Arguments in favor of the bill typically take a “leveling the playing field” tack. David French, senior vice president of the National Retail Federation, one of the bill's loudest supporters, said in a letter to Senate members, “This collection disparity has tilted the competitive landscape against local stores, creating a crisis for brick-and-mortar retailers around the country and in your state."

Many online retailers oppose the legislation, saying the sales tax would create an administrative nightmare. Proponents counter that existing software could easily handle different tax rates for different states and localities.

Online bidding giant, eBay EBAY says it does not oppose the collection of sales tax for online purchases, but is lobbying for a $10 million exemption for small businesses versus the $1 million that has been proposed.

According to CNNMoney, several academic studies estimate more than $12 billion in additional sales taxes would be collected from online purchases each year if the bill becomes law.

Large brick-and-mortar retailers, such as Wal-Mart WMT, already charge sales tax for web purchases. In many states, however, you can still shop tax-free at Internet-only retailers like Amazon AMZN or Overstock OSTK. Amazon, by the way, has come out in favor of the collection of online sales tax.

Nearly 30 percent of online shoppers surveyed by AlixPartners recently said they would shop more at brick-and-mortar retailers if the tax became reality. In addition, almost half said that an Internet sales tax would have no effect on their online shopping habits.

The Obama administration has endorsed the bill. If it gains approval in the House, it is likely to become law.

As of this writing, Jim Probasco has no position in any mentioned securities.