Tax-Free Online Shopping Hits the Chopping Block

The halcyon days of widespread tax-free online shopping may be numbered. The Senate yesterday voted 74 to 20 to take up a bill that would let states require Internet retailers to collect sales tax, the AP reports. It could be passed within the week, though it may have a tougher time among House Republicans who call it a tax hike. As it stands, states can't require online retailers to collect state and local taxes unless the business is physically based in the state. Some states call on taxpayers to pay online sales tax with their yearly returns, but few actually do it, officials say.

Advocates argue that the bill, which has President Obama's support and doesn't apply to businesses with less than $1 million in yearly online sales, levels the playing field and means more state revenue. But "it is going to make online businesses the tax collectors for the nation," says New Hampshire Sen. Kelly Ayotte. A Wall Street Journal editorial rails against the idea, saying it "discriminates against Internet-based businesses." While online firms in New Hampshire would have to collect state and local taxes, for instance, the state's brick-and-mortar firms still wouldn't. Click for the full piece. (More Senate stories.)