Congress to push Internet sales tax after midterm elections

Lawmakers have set up a lame-duck showdown over a long-stalled issue: whether to give states more authority to tax Internet sales.

Senate Majority Leader Harry Reid (D-Nev.) put the online sales tax legislation at the top of his priority list, when he shared his post-November to-do list before leaving Washington to campaign. 

{mosads}“That is long, long overdue,” Reid said of the online sales tax bill, known as the Marketplace Fairness Act (MFA). 

He said he’d do “whatever it takes to get that done.”

Supporters have seen their efforts fall short before. But they believe they’ve found the perfect vehicle for getting a bill across the finish line this year — linking it to an extension of a widely supported law that bars local taxes on Internet access, the Internet Tax Freedom Act (ITFA).

Lawmakers extended the moratorium on Internet access taxes, which was scheduled to expire on Nov. 1, until mid-December in the stopgap spending measure they passed last week.

The short-term spending bill expires on Dec. 11, giving supporters a chance to pair the Marketplace Fairness Act with a longer extension of the online tax moratorium.

The lame-duck session is poised to be crucial for both sides.

If the online sales tax bill doesn’t become law this year, supporters will have to restart the legislative process in 2015 — after watching the Senate pass a version of the Marketplace Fairness Act in the first part of last year.

Opponents of the bill — including prominent GOP lawmakers and conservative organizations — are also ready for a fight, acknowledging that online sales tax advocates have found a viable vehicle with the Internet Tax Freedom Act.

Both sides are also grappling with the uncertain political atmosphere they will face after November’s elections, with control of the Senate in January still up for grabs.

At issue is a bill that would allow states to collect sales tax revenue from online retailers outside their borders. Right now, states can only collect sales taxes from a business with a physical location in that state.

Supporters of the bill say it would give states a $23 billion influx of revenue from taxes that are already owed, but rarely paid, and level the playing field between online and brick-and-mortar companies. But opponents say the measure would serve as a de facto tax increase, taking $23 billion out of the economy, and would burden smaller retailers.

Lobbyists pushing for the Marketplace Fairness Act insist a proposal could pass the House — the focus for both supporters and opponents since the Senate passed its bill in May 2013.

But both Speaker John Boehner (R-Ohio) and House Judiciary Committee Chairman Bob Goodlatte (R-Va.) have said they oppose the MFA in its current form.

Rep. Jason Chaffetz (R-Utah) has worked to broker a compromise, and lobbyists working on the issue say a measure could be released after November’s election. A spokeswoman for Chaffetz said it was too soon to know whether a bill could be ready by year’s end.

“We’re always working to find something that will attract the necessary votes in the House to pass,” Senate Majority Whip Dick Durbin (D-Ill.) said last week. Durbin is one of the bill’s top supporters, along with Sens. Lamar Alexander (R-Tenn.) and Mike Enzi (R-Wyo.).

“We’re working with them in an effort to find some language that’s mutually acceptable,” added Durbin, who said he’d spoken with Chaffetz about the matter.

Still, supporters of the online sales tax measure have expressed confidence for years that the MFA would eventually get to President Obama’s desk, only to see it stall on Capitol Hill.

Jason Brewer, of the Retail Industry Leaders Association, a supporter, said that pairing the two tax bills allowed retail groups to make the case that their measure wasn’t an “Internet tax.”

“For every member that is saying, ‘Let’s get ITFA done,’ there’s another member saying, ‘Let’s get both done,’ ” Brewer told The Hill.

Reid, though, faces opposition from  within his own party.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) warned his colleagues last week that anyone trying to combine the two bills was “holding the Internet economy hostage.”

“Anyone who votes for passing MFA alongside ITFA is voting to repeal the Internet Tax Freedom Act,” he said.

That sets up the lame-duck session as a test for Wyden, who already saw Reid and Democratic leaders reject his proposals for highway funding and the so-called Medicare “doc fix” this year.

Democratic leadership bypassed the Senate Finance Committee to pass the online sales tax bill under Wyden’s predecessor, former Sen. Max Baucus (D-Mont.).

Oregon and Montana are among the handful of states with no sales tax.

Steve DelBianco, of NetChoice, a group lobbying against the online sales tax bill, said opponents were worried that powerful lawmakers like Reid could muscle the Marketplace Fairness Act into law more easily in a more chaotic lame-duck session.

“But my hope is that House leadership understands that, in a new Congress, they can pursue alternatives,” he said, adding that ITFA could be passed retroactively next year.

Pushing the issue into the next Congress, though, could aggravate tensions between Democratic supporters on Capitol Hill and the generally GOP-friendly business groups who back the online sales tax bill.

Durbin, for instance, has long said he was frustrated that groups like the Chamber of Commerce don’t do more to call out Tea Party Republicans standing in the way of issues important to them.

“It gets to be a burden after a while that the Democrats are being asked to explain to the quote, party of business, unquote, that they better stand up and take control of their own party,” Durbin told reporters.

Brewer said he understood Durbin’s frustrations but also said that the business lobbies were doing a lot behind the scenes to shore up support for the measure.

“We’ve done quite a lot to push House Republicans,” he said.  “A lot of work has gone into building our vote count in the House.”

Julian Hattem contributed.