WASHINGTON – Landmark legislation to force online and mail-order retailers to collect sales tax on out-of-state purchases advanced toward Senate passage this week.
Retail giants such as Minnesota-based Target and Best Buy have spent millions of dollars over the past decade lobbying to tax online sales, and an overwhelming Senate vote to close debate Thursday means passage there is likely in early May.
Supporters argue that the inability of states to collect taxes on their residents’ online purchases cheats state governments out of revenue that is legally theirs.
But the outlook is unclear in the House, where anti-tax fervor is strong. The fact that the legislation even mentions the word “tax” will cause some House Republican hard-liners to “oppose it reflexively,” said Don Kettl, dean of the University of Maryland’s School of Public Policy.
In Minnesota’s House delegation, Democrats Keith Ellison and Betty McCollum are co-sponsoring the House online sales tax bill. Democrat Collin Peterson supports it. Rep. Rick Nolan, a Democrat, has not studied the bill, but would be likely to support it, a spokesman said.
“By closing this loophole, we’re ensuring that everyone is playing by the same set of rules and, at the same time, investing in our local communities,” said Tim Walz, the delegation’s other Democrat.
The delegation’s three Republicans — John Kline, Erik Paulsen and Michele Bachmann — did not respond to requests for comment about the online sales tax bill.
Minnesotans are obliged to pay sales taxes to the state for out-of-state online and mail-order purchases, but very few do. State officials have estimated that $400 million in revenue is lost from unpaid online sales taxes per year.
Meanwhile, retailers large and small complain that the failure of out-of-state online sellers to charge sales taxes puts jobs at risk by encouraging buyers to shop locally, but buy online.
“It’s so common there’s a term for it,” said Minnesota Sen. Al Franken, a Democrat who co-sponsored the Senate’s online sales tax bill. “It’s called showrooming.”
Shoppers go to a neighborhood store, pick the brain of the sales staff about different products, then use that knowledge to buy online, sometimes on a smartphone without leaving the store, Franken said.
Minnesota Sen. Amy Klobuchar, also a co-sponsor of the Senate bill, said House members must decide “whether they support ideology or local business.”
Experts say the choice will not be easy for representatives who feel they have sworn a blood oath against the “T” word. “Nothing’s a slam dunk in the House unless it is to repeal Obamacare,” said congressional analyst Norman Ornstein of the American Enterprise Institute.
The House version of the online sales tax bill has added 10 co-sponsors in the past three days. It now has 65. But the bill remains in a subcommittee and neither House Speaker John Boehner nor Majority Leader Eric Cantor appears on the supporters’ list.
A couple of days ago, anti-tax guru Grover Norquist, from whom many House hard-liners take their cues, criticized the online sales tax bill. Norquist called the legislation a way for elected officials in one state to tax online business owners in another.
“There are tremendous abuses that would flow from politicians taxing businesses that can’t even vote against them,” Norquist said.
The University of Maryland’s Kettl believes that viewpoint shackles the economy as much as the government.
“If we were to limit taxes only to the jurisdictions where the taxing decision was made, we wouldn’t have much of an economy,” he noted.
At the same time, Kettl acknowledged the power of the anti-tax forces in the Republican-controlled House.
With Republican governors looking for new revenue streams and big corporations looking to protect their market shares, compelling sales tax collections by online and mail-order merchants would seem like an easy sell for the GOP, Ornstein said. But as House Republican hard-liners have shown with other fiscal measures that easily passed the Senate, anything involving the word tax faces a potential revolt.
“It’s more likely than not to happen,” Ornstein said. “But there is a strong enough visceral anti-tax reaction in the House to make it tricky.