Online shoppers would have to pay state sales taxes on more purchases under legislation that advanced in the U.S. Senate on Monday — but Marylanders could also wind up paying a smaller increase in gasoline taxes.
Bricks-and-mortar stores have long sought changes to a federal law that they say gives online companies such as eBay an advantage: Most Internet retailers don't charge sales tax, and most consumers ignore requirements to declare their online purchases for state taxing purposes.
The Senate legislation, which cleared a procedural hurdle Monday, would in effect require online businesses to collect a state's sales tax from state residents who buy things. It has even broader implications in Maryland. State taxes on gas would go up less in the next few years if Annapolis can collect the Internet sales tax instead.
The federal legislation has pitted business owners against one another and divided both Democrats and Republicans. The outcome could have a significant effect on online commerce, which accounted for nearly $60 billion in sales in the fourth quarter of last year.
"It simply levels the playing field," said Chris Coleman, co-owner of Nelson Coleman Jewelers in Towson. "It creates the mechanism for government to collect the use taxes that are already due."
Senators voted 74-20 Monday to end debate on the federal Marketplace Fairness Act, surpassing the 60-vote threshold needed to bring the bill to the floor. A final vote in the Senate — which could come as early as this week — will require a simple majority for passage. If approved, the measure would then go to the House of Representatives, where its prospects are uncertain.
The Obama administration said Monday it supports the bill. If the measure becomes law, states could begin collecting the taxes about 90 days later.
Maryland businesses are required to collect a 6 percent sales tax on many goods, generating about $4 billion for the state last year. Online retailers who have a physical presence in the state also are supposed to collect it. Online shoppers who purchase an item across state lines are supposed to notify the state and pay a use tax — but they rarely do.
The proposal's chances in the Republican-controlled House of Representatives are unclear because the years-long debate over the measure does not break neatly along party lines. Twenty-six Republican senators backed the bill Monday and three Democrats opposed it.
Virginia Rep. Bob Goodlatte, the Republican House Judiciary Committee chairman, said he is "open to considering legislation" but that the Senate version "has a long way to go." Several Republican governors, including Chris Christie of New Jersey and Terry Branstad of Iowa, have publicly endorsed the legislation.
In Maryland, the General Assembly just approved legislation that is expected to increase the state's 23.5-cents-a-gallon gas tax by about 20 cents by mid-2016. But if the federal government allows the state to apply its sales tax to Internet retailers, motorists could be spared about 7 cents of the gas tax increase, General Assembly officials have said.
Opponents of the federal proposal have begun to lobby heavily against it. John Donahoe, eBay's president, sent a letter to users asking them to press their members of Congress to vote against the bill.
The proposal exempts purchases from businesses that earn less than $1 million annually from out-of-state sales. Donahoe wants lawmakers to expand that exemption to businesses earning less than $10 million.
"For consumers, it means more money out of your pocket when you shop online," he wrote. "For small-business sellers, it means you would be required to collect sales taxes nationwide from the more than 9,600 tax jurisdictions."
Ron George, who owns Ron George Jewelers with stores in Annapolis and Severna Park, said the proposal would affect his own Internet sales. But he also opposes the legislation on principle because, he said, it would take money out of the state's economy.
The added tax, he argued, might have been spent at a local business.
"If it's more revenue that's going to the states, that's still less discretionary money for citizens," said George, who is also a Republican member of the House of Delegates. "If it goes to the government, it stops generating new money."
The state transportation measure is expected to yield $734 million a year for transportation projects when fully phased in.
The Maryland Comptroller's Office has estimated that a proposal similar to the bill that advanced in the Senate on Monday would increase annual tax revenue in the state by $173 million a year. State officials have not estimated the increase in revenue expected if the current federal legislation is approved.
Sales tax bill
The U.S. Senate advanced a bill Monday to allow states to collect sales taxes from out-of-state, online retailers.
If approved, Maryland would receive tens of millions more in sales tax revenue. State officials estimated an earlier, similar proposal would bring in about $173 million a year.
Some of the new revenue would be used to lower an increase in the state gasoline tax the General Assembly approved this year as part of its transportation funding measure.