Internet Sales Tax Bill May Stall in House of Representatives

internet sales tax bill

Small business owners:  if you are opposed to the Internet Sales Tax bill, you may be able to breathe a sign of relief – for a while anyway.

If you are in favor of the Internet Sales Tax bill, be prepared to have your patience tested.

Earlier this week, the U.S. Senate passed the Internet Sales Tax bill.  But the House of Representatives, which would also have to pass the bill before it could become law, may just throw a monkey wrench into the legislation.

Reuters is reporting that Speaker of the House John Boehner (R- OH) will send the Senate version of the legislation to the House Judiciary Committee, likely stalling the bill.  Boehner, who opposes the bill like many other Republicans in the House, may wish to delay any vote on the measure.  There is no timetable for a potential vote in the House of Representatives.

The Internet Sales Tax bill would allow individual states to require e-commerce merchants to collect and pay state sales taxes even if merchants don’t possess a physical presence in the state.  Current legal doctrine mostly requires a physical presence. The proposed bill exempts small businesses with less than $1 million in sales in states that collect sales tax.

One Man’s Fairness is Another Man’s Unfairness

The official title of the bill is the Marketplace Fairness Act.  But fairness is in the eye of the beholder.

Those in favor include  The eCommerce giant initially fought the concept of an Internet sales tax, but more recently came out in favor of the measure.  Some speculate the reason is that Amazon is planning to build warehouses in every state in order to enable same day delivery and thus would have to collect sales taxes anyway.  The bill would give Amazon a competitive edge, due to its huge resources and technology, over smaller retailers not as easily able to handle the burdens.

Retailing giants WalMart and Best Buy are also in favor of the measure becuase they already collect sales taxes due to stores in every states.

It’s said that brick and mortar small businesses also favor the bill.  However, since there is no single voice for small retailers it’s hard to say how strongly or the extent to which they support it.

The affiliate marketing industry also supports the bill, because 76,000 affiliate sellers have been cut off from advertising revenue due to states that already have attempted to pass laws imposing sales taxes.  Rather than pay sales taxes, large merchants simply discontinue their affiliate programs with small web publishers in the affected states that individually passed laws.

Those opposing the Internet sales tax bill include online sellers, and sites like eBay,where millions go to sell merchandise today and mostly do it free of sales tax.  They would have the burden of having to figure thousands of tax options (for 9600 state and local taxing jurisdictions), remitting taxes, and being subject to audit, paperwork and regulatory enforcement by them.  They see it as a tax grab by state governments looking for more tax revenue.

Former Vice President candidate Sarah Palin sounded off against the Internet Sales Tax on her Facebook page this week, where her post already has generated over 1,400 comment. She said, “This new internet tax is not only another barrier to entry for smaller online start-ups, it’s a disincentive to grow a company. This will hit these smaller companies right where their margin of profit is, which means that this will cost jobs because when businesses lose profitability, they lay off workers or shut down.”

But the impact is not nearly as cut and dried for small businesses, even for brick and mortar retailers.   I would add, as a former co-owner of a retail shop in a small town:  while 80% of our sales were local, 20% were online.  And that was a decade ago — it likely would be a much higher percentage of sales online today.  So it’s not just about online entrepreneurs.  And while the $1 million sales exemption may sound high, remember, this is retail. That might translate into $150,000 net to a retailer – maybe less.  The retailer may employ only a handful of employees.  That’s hardly a huge business.

Shipping Photo via Shutterstock


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

13 Reactions
  1. I never thought the glacial pace of the House of Representatives could be a blessing…

    • Amen. A couple quotes i’ve read online:

      Be glad that you are not getting all the government that you are paying for.

      I like my government in gridlock. They have less effect on me that way.

  2. Something I rarely see stated is that states that collect sales tax from retailers with physical presence also are providing police, fire and other community services. This would not be the case for web-only businesses where the states would receive this windfall without having to spend a dime for the support of the sellers without retail physical property.
    Basically, a free ride for the states.
    No wonder they want it.
    Meanwhile, small web companies would still be subject to all the audits and state overhead to prove they are beneath the exemption limit. So, exempt wouldn’t exactly be exempt, burden wise, would it?
    As a super small ebay seller, I would stop all selling simply knowing that someone out there would be monitoring me without cause.
    It really would not be worth what little return there might be otherwise.
    Now if ebay, collected all the sales taxes and handled everything so that it was transparent to the seller, that might change the game for me but the tax rate would still need to be lower considering the state does nothing at all in return for it.

  3. Even though the bill has been amended to exclude businesses making less then a million we (small businesses)should continue to fight the bill. Once the bill is established what’s to stop legislators from changing it once states find themselves strapped for money once again? It seems as if the small online businesses are getting hit constantly. Which is really stupid since small businesses NOT big businesses employ the majority of people in this country.

    More people need to register and then vote intelligently. When you write letters to your legislators you can bet they check to see if you vote.

  4. It it was really about fairness why not just have the online business charge everyone the sales tax that is in their state rather than filing for 10,000 different sales tax forms. If I visit a brick and mortar store in new york I pay for their sales tax not the one in my home state. It’s because these high tax states wants part of the money grab. Then you have to pay to send out all these tax forms and who will compensate that?

    • Great points but you’re expecting common sense out of politicians who have none (both sides as far as I’m concerned).

  5. As some have already stated,

    If we are to be fair, B&Ms should do it also.

    With 9600 sales tax jurisdictions in the US, accounting firms are pricing this at $1.50 or more per sale or at an initial cost of as much as $7,300 or more. Even if free, there is a cost of manpower and resources to interface this software which is not true for the Brick and Mortar stores. If this is easy, then B&Ms should do it also. They will need to ask for ID and charge sales tax based on the customer’s address on every sale. It is only fair!

    This is a USE TAX not sales tax
    A USE TAX views a state’s population as a revenue stream, while Sales Tax supports the dealer’s community where the business made the sale. If the states agree to get rid of use tax and accept that the sale takes place at the web site as they do with B&M sales, then everyone gets a fair and level playing field. States would need to compete for these internet businesses, but they stand to make a lot more than they do through the unlikely named Marketplace fairness act. Dealers deal with 1 jurisdiction, not 9600.

    It is easy, Sales Tax takes place when you visit and buy at a store on line or on Main Street! Let Dealers charge sales tax from their jurisdiction as sales tax was intended, to provide police and fire protection, roads, educational support and more to their communities to help build business that creates sales.

    Dealers do this now for instate sales. This adds no new laws, no new taxes. It repairs the system and supports the communities that support the dealer. It does not even affect the commerce clause.

    Buyers choose where they buy and what they pay. If they do not like a tax from a jurisdiction, they vote with their feet and buy elsewhere on line or on Main Street.

    Please visit Ask questions, make comments and help us bring this question around to one that makes sense for everyone.

  6. Because state and federal governments have been outspending their tax base they are now like addicts looking for a fix. Personally I’m sick of the government not watching their pennies and then looking to use as an easy source for extra cash. If more of us voted the government would be more fearful of doing such things. I agree that if we have to pay a tax then make it the one our customers in our state pay. This would not only be fair but better for the businesses that are struggling to hang on in a very unfair playing field.

    • “Personally I’m sick of the government not watching their pennies and then looking to use as an easy source for extra cash.”

      This is called human farming or tax farming. Keep us fat and happy and keep taxing us. Eventually the system will fail but as long as we can afford a new car, big screen TV, house and a vacation people will be apathetic about our government, its spending and the taxation that it imposes.

  7. This is definitely like to hit the small businesses struggling in the vicious competitive marketplace, real hard. Sarah Palin sounds right n saying that she does. The title Marketplace Fairness Act is so ironical.

  8. Aren’t most of the things passed by BOTH parties Ironic? Both parties say they want our freedom except for………and both parties only care about themselves.

  9. Why stop here? As an online business owner we sell to many foreign countries. What is to stop them from wanting to collect their “fair” share of taxes? Additionally we spend a fair amount of time collecting and preparing the single tax reports for our fair state and locality. Isn’t it naïve to believe that simply having the software for assembling 50 plus jurisdictions and of course many more will solve the time element? There is such a thing as a slippery slope and we are clearly on the slope, it is just a matter of time before hungry and in some cases greedy localities and states find that there is another tax that needs to be collected. What say would we have in how that money is spent? Remember taxation without representation? Since we will be paying others states taxes should we not be able to vote on who is going to be spending our $52.19? Where will it all end?