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In 2012, internet sales in the United States totaled $226 billion, which is an increase of 16% over 2011, according to the U.S. Commerce Department. That number is expected to increase between 9 and 12% in 2013.

The U.S. Senate could soon pass a bill enabling states to collect sales taxes from stores with online sales of $1 million or more, nationally. Supporters call it a "states' rights" law that will enable states to collect more revenue, and opponents claim it will harm small businesses trying to compete in an international market.

Currently, online sales are only taxed by a state if the seller has a physical presence in that state. The strongest opposition is coming from the states with no sales tax (e.g., Montana, New Mexico and Oregon), claiming the bill forces businesses to become tax-collectors for other states. Montana Senator Max Baucus believes the proposed law will force "small businesses to hire expensive lawyers and accountants to deal with the burdensome paperwork and added complexity of tax rules and filings across multiple states." These three states are not alone in their dissent. Mammoth online companies like Ebay have started recruiting their users to protest the bill, and are lobbying hard to raise the bill's $1 million exemption to $10 million.

President Obama and many governors, Democratic and Republican alike, support the bill, and a bipartisan coalition of senators introduced companion legislation in the House.

How far-reaching could the effects of this bicameral bill be, if it is passed?

  • It will increase the cost of products because it will give states the right to collect sales tax on out-of-state retailers, whether they sell online, through catalogs or over the phone. (This is by virtue of the fact that only a small portion of the taxes on these sales that SHOULD be recovered under the current tax scheme, ever are.) Retailers will not absorb these new taxes or the cost incurred in collecting them. They will pass them along to the consumer.
  • States' revenues will likely increase, which, depending on the state, could mean more social service programs or lowering budget deficits. Unfortunately, the bill reportedly does not address where these new taxes will be collected: the home state of the buyer or seller? Congress may leave that up to the states to determine.
  • Some claim it will invade the privacy of online users. How is unclear.
  • The bill could pave the way for financial transaction taxes levied by states, which worries Wall Street groups.
  • It could lead to larger, overall tax reform.
  • It could hamper business and technological innovation, and stymie market growth.

In the past, members of Congress have attempted to pass legislation similar to the Marketplace Fairness Act of 2013 three times, unsuccessfully.

But there are significant differences between the prior proposal and the MFA of 2013. Key differences include an increase in the dollar threshold for the small-seller definition, the requirement that states must provide free sales tax calculation software to remote sellers (other than those that meet the small seller exception), the exclusion of single and consolidated service providers, and a preemption clause which may be interpreted as an expansion of state’s powers.

See .

Proponents of the current bill hope these differences will aid in its passage. If their hopes are realized, the bill could potentially impact every aspect of our market economy, which in turn impacts every aspect of American culture – good, bad or otherwise.

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