Senators rally opposition to Internet sales taxes

Two U.S. senators are trying to prevent their colleagues from rushing to embrace Internet sales taxes, CNET has learned.

Sens. Ron Wyden (D-Ore.) and Kelly Ayotte (R-N.H.) are planning to introduce a resolution today saying that no laws should be enacted that would let states impose "burdensome or unfair" taxes on Internet retailers.

Their resolution is a preemptive attack on a Republican-backed bill that, as CNET reported this morning, would allow states to force Amazon.com, Newegg.com, and other out-of-state retailers to collect sales taxes. That bill is expected to be announced later this week or next week.

Sens. Mike Enzi of Wyoming and Lamar Alexander of Tennessee are currently putting the final touches on that legislation, which is backed by Wal-Mart, Best Buy, Home Depot, and other companies that are currently required to collect sales taxes. It's a bipartisan concept: a related effort was embraced by Democrats including Sen. Dick Durbin of Illinois a few months ago.

The forthcoming bipartisan resolution, which is nonbinding, is an attempt by Wyden and Ayotte to put their colleagues on record as opposing taxes that would have a harmful economic effect. A draft obtained by CNET says the type of taxes envisioned by big-box retailers "would adversely impact hundreds of thousands of jobs, reduce consumer choice, and impede the growth and development of interstate commerce."

"I intend to continue to thwart any efforts that would limit the development of the Internet and discourage its use as a platform for commerce," Wyden said last fall. He previously championed a moratorium on "discriminatory" Internet access taxes on DSL, cable, or wireless connections that has been extended through 2014. (Neither Oregon nor New Hampshire have sales taxes.)

eBay vice president Tod Cohen applauded today's resolution, saying:

Today's Senate resolution recognizes the bipartisan support for shielding small businesses expanding on the Internet from facing new tax barriers to success. Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the Internet.

A similar resolution, H.Res 95, was introduced in the U.S. House of Representatives in February by Rep. Daniel Lungren (R-Calif.). It has 31 cosponsors including Zoe Lofgren, a Democrat from Silicon Valley, and Ron Paul, the Republican presidential candidate.

The Retail Industry Leaders Association, which represents big-box retailers, says that new federal legislation is necessary because Amazon.com, Overstock.com, Blue Nile, and other online retailers that aren't required to collect taxes are unreasonably depriving states of revenue, and that they enjoy an unfair competitive advantage over rivals that have physical presence in every state.

On the other hand, a 1992 Supreme Court ruling says that, unless Congress changes the law, retailers can't be forced to collect sales tax on out-of-state shipments unless they have offices in those states. And with over 7,500 taxing jurisdictions, each with its own rules and ability to conduct audits, compliance with each is is not a trivial task.

Technically, of course, Americans in states with sales taxes are supposed to keep track of out-of-state purchases and cough up the necessary sales tax on April 15--the concept is known as a "use tax." But state tax collectors have long complained that, in practice, that just doesn't happen, and that the money has remained in taxpayers' pocketbooks.

Steve DelBianco, executive director of NetChoice, whose members include eBay, Overstock.com, and Yahoo, says state tax collectors' estimates of uncollected use taxes is far too high.

His logic: The U.S. Department of Commerce estimates (PDF) that business-to-consumer online commerce in 2009 was $101.1 billion. If sales and use taxes are an average of 7 percent nationwide, the maximum total of uncollected taxes would be $7.1 billion. Which is, according to the Census Bureau, about one half of one percent of state and local government annual tax revenue.

But, DelBianco says, online retailers with physical presence in multiple states already collect sales taxes, so the amount of owed-but-uncollected taxes would be even lower. "It's much ado about very little," he says.

Last updated at 1:07 p.m. PT