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Senate to open debate on charging national sales tax on online purchases

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Photo - NEW YORK, NY - SEPTEMBER 28:  Members of the media cover the launch of the new Amazon tablet called the Kindle Fire on September 28, 2011 in New York City. The Fire, which will be priced at $199, is an expanded version of the company?s Kindle e-reader that has 8GB of storage and WiFi. The Fire gives users access to streaming video, as well as e-books, apps and music, and has a Web browser. In addition to the Fire, Bezos introduced four new Kindles including a Kindle touch model.  (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - SEPTEMBER 28: Members of the media cover the launch of the new Amazon tablet called the Kindle Fire on September 28, 2011 in New York City. The Fire, which will be priced at $199, is an expanded version of the company?s Kindle e-reader that has 8GB of storage and WiFi. The Fire gives users access to streaming video, as well as e-books, apps and music, and has a Web browser. In addition to the Fire, Bezos introduced four new Kindles including a Kindle touch model. (Photo by Spencer Platt/Getty Images)
Politics,Science and Technology,Congress,Susan Ferrechio,Taxes,Senate

Fresh off last week's bitter battle over gun control legislation, the U.S. Senate is slated to delve into another divisive issue: legislation to tax Internet sales.

Senate Majority Leader Harry Reid, D-Nev., is expected to begin debate on the Marketplace Fairness Act as early as Monday with a possible vote on the measure by the end of the week.

The bill would allow states to require online retailers of a certain size to collect sales tax, even when the seller is from a different state. States now lose about $11 billion in tax revenue because online sales are not taxed, according to a 2011 report by Fitch Ratings.

Under current law, online retailers must collect taxes only in states where they have a physical presence. The legislation would compel those retailers to collect in all states, with an exception for retailers with annual sales of less than $1 million.

Support for the legislation crosses party lines but so does the opposition in the Senate.

The bill's main proponent, Sen. Dick Durbin, D-Ill., told The Washington Examiner that an online sales tax would bring relief to brick-and-mortar stores that have a hard time competing with online entities that can sell goods at a lower price because they don't have to charge a sales tax.

"We think there should be a level playing field and equal treatment of businesses," Durbin said, "whether they are brick-and-mortar businesses on Main Street or Internet businesses."

But there are vocal opponents within Durbin's own party who intend to block the legislation.

Most of them hail from states that have no sales tax of their own, like New Hampshire and Oregon. Passage of the Internet tax would mean their online retailers would still have to collect the tax from sales in other states, a potentially burdensome and costly requirement.

One of those opponents, Sen. Ron Wyden, D-Ore., told The Examiner that the legislation would hurt small online businesses and encourage border-state Internet retailers to leave the country.

"They ought to rename this bill 'Shop Mexico,' or 'Shop Canada,' " Wyden said. "This bill gives a huge advantage to the foreign retailer over the American retailer, because it doesn't apply to the foreign retailer."

Another Democratic opponent is Senate Finance Committee Chairman Max Baucus of Montana, who faces a potentially difficult re-election fight in 2014.

Baucus is trying to convince Reid to allow his committee to tackle the online sales tax as part of comprehensive tax reform. But Reid moved last week to leapfrog over the committee process and send the bill straight to the floor for debate.

"I do not support the bill," Baucus said. "There are always opportunities to amend or change it" on the floor.

But opponents may be outnumbered by the many senators from states that want the additional sales tax to supplement their cash-strapped budgets, including Maryland and Virginia. Both states are counting on the online tax to raise money for roads. If the tax fails, motorists in both states would pay higher gas taxes to make up the difference.

"I come from a state that does not have an income tax, and I'd certainly like to keep it that way," Sen. Bob Corker, R-Tenn., told The Examiner. "I'm very supportive of the bill."

sferrechio@washingtonexaminer.com

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Susan Ferrechio

Chief Congressional Correspondent
The Washington Examiner