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Senate votes to tax online purchases

– The Senate sided with traditional retailers and financially strapped state and local governments Monday by passing a bill that would widely subject online shopping – for many a largely tax-free frontier – to state sales taxes.

The Senate passed the bill by a vote of 69 to 27, getting support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Obama has conveyed his support for the measure.

Under current law, states can only require retailers to collect sales taxes if the store has a physical presence in the state.

That means big retailers with stores all over the country like Wal-Mart, Best Buy and Target collect sales taxes when they sell goods over the Internet. But online retailers like eBay and Amazon don’t have to collect sales taxes, except in states where they have offices or distribution centers.

As a result, many online sales are tax-free, giving Internet retailers an advantage over brick-and-mortar stores.

“We ought to have a structure in place in the states that treats all retail the same,” said Matthew Shay, president and CEO of the National Retail Federation.

The bill would empower states to require businesses to collect taxes for products they sell on the Internet, in catalogs and through radio and TV ads. Under the legislation, the sales taxes would be sent to the state where the shopper lives.

Supporters say the current tax disparity is turning some traditional stores into showrooms, where shoppers pick out items they like, then buy them on the Internet to avoid sales taxes.

“It’s about the way commerce has changed in America,” said Sen. Dick Durbin, D-Ill. “Bookstores, stores that sell running shoes, bicycles and appliances are at a distinct disadvantage. They’ve become showrooms.”

Internet giant eBay is leading the fight against the bill, along with lawmakers from states with no sales tax and several prominent anti-tax groups. The bill’s opponents say it would put an expensive obligation on small businesses because they are not as equipped as national merchandisers to collect and remit sales taxes at the multitude of state rates.

Businesses with less than $1 million in online sales would be exempt. eBay wants to exempt businesses with up to $10 million in sales or fewer than 50 employees.

States lost a total of $23 billion last year because they couldn’t collect taxes on out-of-state sales, according to a study done for the National Conference of State Legislatures. About half of that was lost from Internet sales; half from purchases made through catalogs, mail orders and telephone orders, the study said.

The bill now goes to the House, where Rep. Bob Goodlatte, R-Va., chairman of the House Judiciary Committee, would have jurisdiction over the bill. He has cited problems with the legislation but has not rejected it outright.

“While it attempts to make tax collection simpler, it still has a long way to go,” Goodlatte said in a statement.

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