Bye Bye to Tax-Free Internet Shopping?

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The days of tax-free online shopping may soon come to an end. The U.S. Senate will vote on a proposal Monday empowering states to collect sales taxes for Internet purchases.

Under the current law, states can only require stores to collect sales taxes if the store has a physical location in the state. As a result many online sales are essentially tax-free, giving Internet retailers an advantage over local stores.

Supporters say the bill is about fairness for businesses and lost revenue for states.

"While local, community-based stores and shops compete for customers on many levels, including service and selection, they cannot compete on sales tax," said Matthew Shay, president and CEO of the National Retail Federation.

Opponents say the bill would impose complicated regulations on retailers and doesn't have enough protections for small businesses.

"This legislation doesn't help businesses expand and grow and hire more employees," Sen. Max Baucus, D-Mont., said. "Instead, it forces small businesses to hire expensive lawyers and accountants to deal with the burdensome paperwork and added complexity of tax rules and filings across multiple states."

"It is going to make online businesses the tax collectors for the nation," Sen. Kelly Ayotte, R-N.H., said. "It really tramples on the decision New Hampshire has made not to have a sales tax."

While the measure is expected to pass in the Senate, the bill's fate is uncertain in the House, where some Republicans regard it as a tax increase.  

Last year, Internet sales in the United States totaled $226 billion, up nearly 16 percent from the previous year, according to Commerce Department estimates.

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