By an overwhelming 75-24 vote, Senators, late Friday, approved an amendment to the budget draft that would authorize states to compel merchants to collect sales taxes on on-line purchases. The amendment itself is non-binding, but it signals broad support for legislation dubbed The Marketplace Fairness Act. Action on that legislation could come later this year.

Techincally, on-line purchases are subject to sales tax. A landmark Supreme Court decision, however, limits states ability to compel merchants to collect the tax, unless the merchant has a substantial “physical presence” in the state. Under current law, consumers are expected to report their on-line purchases to the state and remit the taxes they owe. Unsurprisingly, almost no one does this.

The Court made clear in its ruling that only Congress could authorize states to force merchants to collect any applicable sales tax. States are afraid that, as e-commerce continues to grow, they will face a significant erosion in their sales tax base. Brick and mortar merchants worry that, without the imposition of sales taxes, on-line products and services will have a price advantage over traditional purchases.

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