eBay CEO enlists users' aid to defeat online sales tax bill

eBay is trying to marshal its users to change federal sales tax legislation pending in the Senate that could usher in the first national Internet sales tax.

eBay CEO John Donahoe began sending e-mails to the online auctioneer's users on Sunday, asking they contact their federal representatives to express their opposition for the Marketplace Fairness Act. The proposed legislation, which the Senate is expected to vote on this week, would allow states to require online vendors to collect sales and use tax on certain out-of-state purchases. Only businesses with less than $1 million in annual U.S. sales would be exempt.

Donahoe, who argued that the proposed tax places an unreasonable burden on small retailers, singled out rival Amazon, which supports the legislation.

"This legislation treats you and big multi-billion dollar online retailers -- such as Amazon -- exactly the same," Donahoe wrote in the e-mail, which was first reported by Reuters. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."

Backers of the bill, including Walmart, Macy's, and Best Buy, argue that online retailers often do not collect sales taxes at checkout and thus enjoy an unfair competitive advantage over the big-box stores. The Marketplace Fairness Coalition, a group of companies supporting the legislation, says the act would "level the playing field."

"Mr. Donahoe wants you to believe that the Marketplace Fairness Act would somehow penalize small online businesses," the MFC said in a statement to CNET. "This is disingenuous because it overlooks the fact that this legislation exempts small sellers with less than one-million dollars in annual remote sales to address concerns about small business compliance. To put this in perspective: the Marketplace Fairness Act exempts 99 percent of all sellers and over 40 percent of all online commerce.

Opponents say the bill amounts to a multibillion-dollar tax hike on American consumers. Last month, the National Taxpayers Union set up a petition to Congress saying the tax was "really just a way to unleash state tax collectors on the Internet," and 15 conservative groups also sent a letter to members of Congress saying an Internet tax law is is "bad news for conservative principles and the cause of limited government."

Senate Majority Leader Harry Reid filed a motion on Thursday supporting the proposal. Since Reid filed the motion, the Senate is now expected to vote as soon as Monday on the motion, but it could come later in the week.

Updated at 5:30 p.m. PT with MFC comment.