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Originally published May 6, 2013 at 10:34 AM | Page modified May 7, 2013 at 12:07 PM

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Internet sales-tax bill backed by Amazon passes Senate

With the number of states where it must collect sales taxes growing, Amazon.com is backing uniform national rules in Congress that would largely do away with tax-free Internet shopping.

Seattle Times Washington bureau

Decline of tax-free shopping

By January, Amazon will be collecting sales taxes in 16 states, nearly doubling its current tally.

Amazon collects taxes in:

Washington, California, New York, North Dakota, Kentucky, Kansas, Texas, Pennsylvania and Arizona.

States where Amazon has agreed to collect:

New Jersey: July 2013

Virginia: September 2013

Massachusetts: November 2013

Connecticut: November 2013

Indiana: January 2014

Nevada: January 2014

Tennessee: January 2014

Seattle Times reporting

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WASHINGTON — The Senate approved legislation Monday that would give states the right to require most Internet retailers to charge sales taxes, a vote that has the blessing from Amazon.com.

The Seattle company’s endorsement — coming from a chief beneficiary of the tax advantage the bill is designed to eliminate — is widely viewed as an acknowledgment that the days of tax-free shopping online are numbered.

The Senate voted 69-27 to pass the Marketplace Fairness Act, with support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Obama has conveyed his support for the measure.

Amazon earlier had fought attempts by some states to force it to collect sales taxes even if Amazon did not have a physical presence in those states.

But Amazon executives have said they decided more than a decade ago that it made sense for Congress to circumvent a pair of longstanding Supreme Court rulings that protected retailers from having to tack sales taxes on purchases in states where they lack stores or other legal physical presence, called nexus.

The company has prepared for that eventuality ever since, even as it fended off revenue-hungry states demanding uncollected taxes.

Amazon’s opposition all along has been less against expanded tax collection than making sure it applies to as many sellers as possible. The company supports a provision in the bill that would exempt online and mail-order businesses with less than $1 million in annual sales from having to collect taxes.

That has set up a clash between Amazon and eBay, whose chief executive, John Donahoe, is seeking to raise the exemption to $10 million. Donahoe is mobilizing his vendors to preserve their tax-free advantage by derailing the bill when it reaches the House.

The two companies’ interests diverged as Amazon reached a tipping point on tax-free shopping.

Since June, Amazon has gone from collecting sales taxes in just five states, including Washington, to nine. New Jersey is to become No. 10 in July.

Come January, Amazon will collect taxes in 16 states, covering 51 percent of its U.S. customers. It has or is building warehouses and other physical facilities in most, but not all, of those states.

“Amazon reversed itself because its financial interests changed,” said Daniel Mitchell, a senior fellow and tax expert at the Cato Institute, a libertarian think tank in Washington, D.C. “It has nexus in too many states and decided it was better to appease the political class.”

Mitchell argues the legislation would undermine tax competition between states and raise costs for consumers.

Retailers in Oregon and four other states without sales taxes also would have to calculate the taxes on sales outside their borders. States that choose to pursue the taxes would have to provide retailers with free software to calculate the rates in hundreds of local and state jurisdictions.

States lose an estimated $11 billion a year in sales taxes that aren’t collected by online and mail-order retailers. Instead, consumers are supposed to remit them on their own, something they hardly ever do.

Washington stands to reap an estimated $184 million for the 2013-15 state budget, and more than $567 million in the following biennium as compliance rises, the state estimates.

Washington Sens. Patty Murray and Maria Cantwell supported the measure. Four Democratic House members from Washington — Reps. Adam Smith of Bellevue, Rick Larsen of Lake Stevens, Suzan DelBene of Medina and Derek Kilmer of Gig Harbor — are co-sponsors of the House version.

Some conservatives oppose the bill as an overreach of federal taxing authority.

Amazon has long voiced qualified support for uniform sales-tax rules. In February 2006, Paul Misener, Amazon’s vice president for global public policy, told a House committee the company almost six years earlier had concluded universal sales-tax collections would be reasonable and that Amazon would not be harmed by it.

“We’ve known all along that, because of the inherent consumer benefits of e-commerce as well as our confidence in our commitment to serve our customers, we don’t need a sales tax price advantage to do very well with respect to our competition,” Misener said.

But it wasn’t until late 2011 that Amazon issued an explicit endorsement for the federal legislation. Misener testified in Congress in support of it last year and wrote to lawmakers urging their vote.

Amazon’s endorsement may propel the bill farther than ever in Congress, said Michael Mazerov, a senior fellow with the nonpartisan Center on Budget and Policy Priorities in Washington, D.C.

The proposal has been around in various forms since 1973, two decades before Amazon’s founding and when the tax fight pitted storefront businesses against mail-order retailers.

Mazerov, tracking the issue since 1989, believes Amazon’s embrace of the bill is genuine, if calculated.

Brian Bieron, eBay’s senior director of global public policy, argues that small online vendors struggle to compete against behemoths like Amazon. Their shipment costs are higher, he contends, and their hassles of dealing with thousands of state and local tax rates will be bigger.

Amazon’s support notwithstanding, Bieron said, “the current bill does not protect small businesses. That’s been out focus since day one.”

Material from The Associated Press is included in this report.

Kyung Song: 202-383-6108 or ksong@seattletimes.com.

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