Senate passes Internet sales tax bill by 2-to-1 margin

Marketplace Fairness Act, which would allow states to levy taxes on Internet purchases, now moves on to the House of Representatives for consideration.

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The U.S. Senate on Monday approved a controversial bill by more than a 2-to-1 margin that would allow states to levy taxes on Internet purchases.

The Marketplace Fairness Act, which would allow states to require online vendors to collect sales and use tax on certain out-of-state purchases, was approved in a bipartisan vote of 69 to 27. The bill, which already has the support of President Obama, will now move on to the House of Representatives.

If approved, the bill would overturn a 1992 Supreme Court ruling that found out-of-state retailers generally don't have to collect taxes unless they have a sufficient business presence. The bill, officially known as S.743, does include an exception for businesses that make under $1 million a year in revenue.

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."

Opponents say the bill amounts to a multibillion-dollar tax hike on American consumers. The National Taxpayers Union set up a petition to Congress in March that said 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."

A fierce battle over the legislation broke out among Internet retailers in the weeks leading up to the vote. eBay CEO John Donahoe, who argued that the proposed tax places an unreasonable burden on small retailers, sent users of the online auction site an e-mail last month urging them to contact their representatives to express opposition for the bill. In his e-mail, Donahoe singled out rival Amazon, which supports the legislation.

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