House Republicans Tread Slowly on Internet Sales Tax

New law would make it easier for states to collect sales tax online.

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In an Amazon-dominated, virtual department store world, who hasn't purchased a product online to skirt brick-and-mortar store sales taxes? But time might be running out to use the loophole if the House moves as swiftly as the Senate has to pass a new internet sales tax.

"It does affect small mom and pop shops," says Rep. Marlin Stutzman, R-Ind. "I am guilty of it, buying things online to avoid sales tax when I could drive down the road and purchase it from a local retailer."

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Thanks for the candor congressman, but while the online sales tax bill garnered overwhelming support in the Senate Thursday when it overcame a procedural hurdle 63-30, (the Senate will vote on final passage of the legislation in May when it returns from recess), members in the House aren't convinced the bill is such a good idea. Neither are the interest groups who fund many of their campaign coffers.

"Most Americans are not aware of this as the Senate has rushed it to the floor," Rep. Tim Huelskamp, R-Kan., says. "It has some real implications, especially those states that have a different sales tax structure. This would be a real burden to businesses."

Groups like Americans for Tax Reform, the Heritage Foundation and FreedomWorks call the legislation a new tax and have urged members to vote against it.

The bill would let the states that have sales taxes to obtain the levy from online purchases made by customers in their states. That's a change from current law, which only allows state governments to collect taxes on purchases made online if a business has an actual location in the state.

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Customers who buy a product online from a retailer without a physical presence in the state are supposed to report that purchase on their taxes, but many argue the law is too burdensome and the National Governor's Association estimated the country has lost nearly $25 billion because of the loophole.

The internet sales tax legislation has been a point of contention for years, but the bill seems to be rolling smoothly through the Senate as many larger companies including Amazon have announced their support.

Interest groups and senators opposed to the bill hope that lawmakers will be flooded with angry emails and phone calls when they travel home during the recess as the Senate takes a break from the contentious bill and the House looks to consider it.

Conservative members of the House are pledging to wade skeptically into the bill. Many argue that the new law would give big businesses and corporations an advantage because they have the means to implement it and interpret thousands of state, local and national tax laws, while it would drag down smaller businesses who would have to set up a whole new tax collection system.

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"I get concerned that what we are doing in Congress is that we allow big government to allow big business to impose requirements on everybody else and it becomes less competitive instead of more competitive," Rep. Raul Labrador, R-Idaho, told reporters this week. "I think we need to have full and open hearings on it."

The legislation, however, does make some exceptions for businesses that make less than $1 million annually.

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