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After easy passage in the Senate, online sales tax bill faces much tougher road in the House

After passing with bipartisanship support in the Senate, an online sales tax proposal faces a much more difficult path in the House of Representatives, with opposition already mounting from tax-averse Republicans.

House Speaker John Boehner (R-Ohio) earlier this week said he “probably” will not support the legislation, which he believes places too heavy of a burden on online merchants by requiring them to begin calculating and charging varying sales tax rates depending on where they are shipping their products.

“I just think that moving this bill, where you’ve got 50 different sales-tax codes, it’s a mess out there,” Boehner told Bloomberg Television. “What you’re doing is you’re going to make it much more difficult for online retailers to be able to comply.”

Currently, states can only require sellers to collect sales tax if they have a physical presence inside their borders. The Marketplace Fairness Act, which passed 69-27 in the Senate on Monday, would authorize them to tax merchants from anywhere in the country that sell and ship to their residents, be it through phone, catalog or online orders.

The Speaker’s concerns echo those from a growing contingency of House Republicans, many of whom view the proposal as a new tax on businesses. That places the bill off limits to conservatives who have forged ties with anti-tax lobbyists like Grover Norquist, founder and president of Americans for Tax Reform.

Related: Onlines sales tax forges odd political alliances

Proponents argue that states already have the authority to collect online sales tax, but the burden is on shoppers, not sellers. That model has proven too complicated, they say, and most customers do not even know they are supposed to file taxes on those purchases — so, many do not comply.

The result is an unfair advantage for online sellers, who can often charge lower prices than brick-and-mortar retailers because they are rarely forced to account for sales tax. It also prevents states from collecting roughly $11 billion in sales taxes every year, and that number continues to grow as more consumers shop online.

“There’s a lot of political difficulty getting through the fog of it looking like a tax increase,” Rep. Steve Womack (R-Ark.), the bill’s sponsor in the House, told the Associated Press.

Though he did not reject the bill, House Judiciary Committee Chairman Bob Goodlatte (R-Va.) said the measure still needs a lot of work.

“While it attempts to make tax collection simpler, it still has a long way to go,” Goodlatte said in a statement following the vote in the Senate. Under the current language, he added, businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions.”

Moreover, he warned that the bill could set a dangerous precedent by allowing states to tax businesses outside their jurisdictions.

Opposition is also expected from some of the 10 representatives from states that do not charge sales tax: Alaska, Delaware, Montana, Oregon and New Hampshire. Of their 10 counterparts in the Senate, seven voted against the bill on Monday.

“This proposal is known as the Marketplace Fairness Act, but it is anything but fair,” Sen. Ron Wyden (D-Ore.) said on the floor of the Senate, later arguing that the legislation is “unprecedented in its reach to discriminate against the Internet, employers, and states with modest or no sales taxes.”

“It is, in my view, a recipe for economic stagnation,” he added.

Join the conversation: What’s your take on the legislation?

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.



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