The Senate voted overwhelmingly on Monday to give states the power to enforce their sales tax laws on online purchases, but the legislation faces a tougher fight in the Republican-controlled House of Representatives.
The Democratic-controlled Senate voted 69 to 27 to back the measure, which pits brick-and-mortar stores like Wal-Mart Stores Inc and cash-hungry state governments against such Web retailers as eBay Inc and Republicans wary of new tax measures.
"Call me a conservative, but I believe the right approach to tax fairness is to reduce rates — not force higher rates onto others," said Tom Graves, a House Republican from Georgia.
House Speaker John Boehner plans to send the bill to the House Judiciary Committee, a senior Republican aide said. That will mean hearings ahead. The Senate uncharacteristically bypassed this step.
Judiciary Committee Chairman Robert Goodlatte, a Republican, has reservations about the legislation, including its complexity and potential impact on small businesses, a spokeswoman said.
Goodlatte has yet to schedule any hearings on it, she said.
Backers of the measure include major traditional retailers Wal-Mart and Best Buy Co Inc, as well as e-tailing giant Amazon.com Inc, which wants to simplify its U.S. state sales tax payments.
Opponents include many other online merchants such as eBay, Overstock.com Inc and anti-tax activist Grover Norquist. Lawmakers from states without sales taxes - like Montana, Oregon and New Hampshire - largely oppose the measure.
States that charge sales tax have largely been unable to require e-tailers to collect it from purchasers unless the e-tailer had a physical presence in the state. Otherwise, consumers are supposed to pay the tax, but very few do.
Some states have made separate arrangements with Amazon on the issue, while others have not.
The bill would let states require out-of-state retailers to collect sales tax on purchases made over the Internet, even if the e-tailer has no physical presence in the purchaser's state.
The bill would allow states to do this but not require them to do so. It would also exempt merchants with online annual out-of-state sales of $1 million or less.
"We place a 30 percent probability that the bill is signed into law by the end of the year" primarily due to opposition in the House, said Guggenheim Securities analyst Chris Krueger.
"Our odds will increase following passage of this bill in the Senate provided it receives a big vote of support," he said.
The online sales tax bill debate is moving on a separate track from efforts in Congress on a broader tax overhaul.
The main obstacle on that front remains the dispute between Republicans who refuse to consider new federal revenue from ending tax breaks that would be part of tax reform, and Democrats who insist that such new revenue is vital.
(Reporting By Kevin Drawbaugh, Patrick Temple-West, Kim Dixon and Nanette Byrnes; Editing by Kevin Drawbaugh, Steve Orlofsky and Eric Walsh)