Goodbye to the Federal Online Sales Tax — for Now

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The outlook for a long-sought federal fix of state sales taxation of online retailers looks dim after comments Wednesday by Robert Goodlatte, chairman of the U.S. House of Representatives Judiciary Committee, suggested the House was unlikely support a Senate bill that would empower states to collect sales taxes on Internet purchases. He called for more debate before legislation moves forward.

Brick-and-mortar retailers have complained for years about having to collect state sales taxes on purchases by their customers, while shoppers who buy from strictly online retailers may not have to pay any sales taxes. That gives businesses that essentially exist entirely online a pricing advantage. In additional, state governments claim to lose $23 billion a year in uncollected sales taxes. Inc. (NASDAQ: AMZN) is the primary beneficiary of the lack of an online sales tax. Amazon has long resisted states’ efforts to force it collect sales tax on consumer purchases, because a vast patchwork of state laws would complicate doing business online. Amazon, along with big-box retailers such as Wal-Mart Stores Inc. (NYSE: WMT) and state governments, now favors a federal solution.

While the Senate approved a bill for the Marketplace Fairness Act last May that would require most e-commerce businesses to collect state sales taxes, Goodlatte raises concerns about online businesses being targeted by state auditors and aggressive state tax agents, as well as the possibility that the public will view it as a tax on the Internet. But John Conyers, the top Democrat on the Judiciary Committee, said he would prefer to move faster on passing an online sales tax bill this year.

Congress has held more than 30 hearings on the issue. One alternative being considered is to tax online sales based on the retailer’s home state, rather than the buyer’s.