Online Sales Tax Gains Momentum In Congress

After gathering some momentum, the latest Congressional effort to impose sales taxes on online purchases has run into a hurdle in the form a resolution from New Hampshire Rep. Paul Hodes urging his House colleagues to reject the legislation.

Efforts to tax online purchases have foundered for years, although individual state efforts have had some success.

Hodes' challenge to the legislation calling for taxation of online purchases is interesting because he stands against another Democratic Congressman, Rep. Bill Delahunt of Massachusetts, who is spearheading the drive for online sales taxes. Delahunt's Main Street Fairness Act has been picking up support among Congress members, who generally have noted that tax-free sales have been costing their states money -- as much as $23 billion for all states.

"Without question, states and local municipalities are facing an unprecedented budget crisis," said Delahunt in a statement. "Instead of raising new taxes, this bill is a common sense approach that allows them to collect taxes that are already owed while coming to the aid of struggling small businesses in our communities."

Hodes has argued that online sales taxes are "unfair" and has urged his colleagues in the House to reject what he says would be a "burdensome" requirement on small online retailers to collect the sales taxes.

The back story here is that Massachusetts and New Hampshire, which border each other, have been at odds over taxes for decades. Massachusetts has a 6.25% sales tax and a 5% income tax, while New Hampshire, which calls the Bay State "Taxachusetts," has no sales tax and no income tax.

The usual retail suspects have lined up on both sides of the issue with the Electronic Retailing Association, which represents online merchants, calling Delahunt's legislation "misguided" and a host of mostly bricks-and-mortar retailers, including the National Retail Federation and the International Council of Shopping Centers, favoring the legislation.

Leading online retailers Amazon and eBay have been long time opponents of online sales taxes. Tod Cohen, eBay's government relations VP, has said a sales tax on online purchases "is sure to harm the economy and kill small business jobs."

The issue could impact former eBay CEO Meg Whitman, who is a gubernatorial candidate in California. The state is in dire financial straits and she may have to explain her longtime criticism of efforts to tax online sales to voters.