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This Sept. 14, 2011 file photo shows Sen. Mike Enzi, R-Wyo., at the Capitol in Washington. Enzi is scheduled to explain his proposal Thursday Nov. 17, 2011 that would allow states to require Internet vendors to collect sales tax for all the states regardless of vendor This Sept. 14, 2011 file photo shows Sen. Mike Enzi, R-Wyo., at the Capitol in Washington. Enzi is scheduled to explain his proposal Thursday Nov. 17, 2011 that would allow states to require Internet vendors to collect sales tax for all the states regardless of vendor's location. (AP Photo/J. Scott Applewhite, File)   

Bipartisan Internet sales tax bill would hurt small businesses, critic says

Wyoming Republican Sen. Mike Enzi calls it the “most overlooked tax loophole,” but critics say mandating Internet sales tax collection would place a significant burden on small businesses.

Several bills pending in Congress to close the so-called “loophole” would set aside the Quill standard that the Supreme Court established in 1992. The ruling established the precedent that only companies with a physical presence in a state need to collect online sales tax for purchases in that state.

Two proposals being discussed — the Marketplace Fairness Act and the Main Street Fairness Act — would create a large compliance and regulatory burden for small businesses who could be forced to file in up to 46 states for sales taxes.

One rule, being pushed by Internet giant Amazon, would require “small business with revenue of $150,000 to collect and file sales taxes for states where they have no presence whatsoever,” according to Net Choice, an Internet trade group.

Steve DelBianco, executive director of Net Choice, told The Daily Caller News Foundation “there has been a fabulous disinformation campaign that suggests that somehow the Internet was given a special favor or treatment.”

“Seventeen of the top 20 e-retailers last year already collect sales tax in 38 of the 46 states that have sales tax,” said DelBianco.

“The Internet collects sales tax in every state where the Internet company has physical presence,” he said. “That’s why Amazon collects in six states today, and by 2014, will be collecting in 14 states that cover half of the U.S. population… due to the existing standard of physical presence.”

“Lands End and Sears, for instance, collect in all 46 states that have a sales tax, because those catalogues and websites are part of a network that has stores in every state. So that’s the existing law — there’s no special pass for the Internet,” added DelBianco.

“Currently, [the states] can only reach the companies that have the physical presence, but their preference is to reach them all,” said DelBianco, adding that only about five percent of sales taxes currently collected come from online sales.

DelBianco told TheDC News Foundation, “I love it when they call it a loophole,” adding that the Quill rule is based on the Constitution.

“Article I was the Commerce Clause that said that the states may not regulate interstate commerce,” he said. “And they wrote that because the colonies were notorious for erecting tariffs and trade barriers to favor their own colony businesses. And for us to stitch ourselves together into a united nation with a single economy, a national economy, we had to stop the states from getting in the way of interstate commerce.”

“You don’t simply grant the states new extraterritorial taxing authority just because they need the money, it needs to be based on removing barriers to interstate commerce,” he said.

The Internet sales tax cause has garnered bipartisan support on the hill, despite Republicans’ general predilection against raising taxes — even gathering support from Republican governors looking to fill their state budget deficits.

New Jersey Republican Gov. Chris Christie “recently reached an agreement under which Amazon would collect sales taxes on his state’s online purchases in exchange for locating distribution facilities there,” the Wall Street Journal reported.

“Having one of the most recognized and widely popular Republican leaders take this position gives other politicians comfort that the online sales tax is fair and helps state budgets in crisis,” said Scott Mason, a vice president at Lowe’s. Lowe’s supports the Marketplace Fairness Act.

DelBianco said bipartisan support for these bills is primarily due to intense business lobbying.

“Big box retailers are spending millions lobbying this issue on the hill,” he said. “They want to force Amazon to collect everywhere and they’d like to add some costs and burdens to those who compete with them,” adding that the volume of lobbying is no secret.

DelBianco will testify in front of the Senate Committee on Commerce, Science, and Transportation on Wednesday in opposition to the Marketplace Fairness Act, along with the vice president of Amazon.com, the CEO of BookPeople and the executive director of Streamlined Sales Tax Governing Board — all three of whom will be advocating for the implementation of an Internet sales tax.

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