The Senate has approved legislation requiring online retailers to collect sales taxes from Internet sales, even if they don’t have a physical presence in the state where the customer resides.

The Marketplace Fairness Act has attracted wide support from brick-and-mortar retailers who have seen shoppers coming to their stores to check out merchandise, only to order it online, sometimes while still in the store from their smartphones. Many revenue-starved state governments have also supported the bill. The legislation even garnered the support of e-commerce giant Amazon.com, which has traditionally fought against online sales taxation, but has been expanding its warehouse presence across the country.

Smaller Web retailers have opposed the legislation, however, arguing that it would be too difficult to calculate and collect sales taxes from every state and locality that requires them. They have been supported by eBay, which argued that the exemption level of $1 million in sales for small e-tailers is too low. The bill is also expected to face opposition from many lawmakers in the House, where the prospects for its passage are uncertain. The Senate had approved the bill in nonbinding votes in recent months and was widely expected to eventually pass the legislation (see Senate Democrats Pass Budget with Tax Increases).

The legislation, sponsored by Senators Mike Enzi, R-Wyo., Richard Durbin, D-Ill., Lamar Alexander, R-Tenn., and Heidi Heitkamp, D-N.D., passed the Senate by more than a two to one margin, with a vote of 69-27.

The bill authorizes each member state under the Streamlined Sales and Use Tax Agreement, the multistate agreement for the administration and collection of sales and use taxes adopted on Nov. 12, 2002, to require all sellers not qualifying for a small-seller exception (which is applicable to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the agreement, but only if the agreement includes minimum simplification requirements relating to the administration of the tax, audits, and streamlined filing.

The National Retail Federation hailed passage of the legislation. “We applaud Senators Enzi, Durbin, Alexander and Heitkamp and the entire U.S. Senate for standing with local retailers and America’s small business owners in a strong, bi-partisan vote for final passage of the Marketplace Fairness Act, despite a highly-funded misinformation campaign by the legislation’s opposition,” said NRF president and CEO Matthew Shay. “Today’s action in the Senate is a significant step for sales tax fairness and we look forward to a robust debate in the U.S. House of Representatives.”

“The retail industry—the largest private sector employer—is rapidly changing and evolving,” said NRF chairman Stephen I. Sadove. “Retailers compete for customers on many different levels, distribution channels and fronts, including service and selection, but they cannot compete on sales tax. Congress needs to address this sales tax disparity and allow retailers to compete freely and fairly. Retailers of all shapes, sizes and channels deserve a level playing field.”

Similar legislation has been introduced in the House of Representatives by Representatives Steve Womack, R-Ark., and Jackie Speier, D-Calif., and currently has over 60 House co-sponsors.

“This bill and its companion in the House will level the playing field for all retailers—both online and off—while safeguarding states’ rights,” said Shay. “And the bill does it all without raising taxes, new government mandates or adding to the deficit. NRF and our broad cross-section of members will work closely with our bipartisan sponsors in the House, Reps. Womack and Speier, and Chairman Goodlatte to ensure that efairness is debated honestly and on its merits. When brought to a vote, we believe the House will pass the bill and it will be signed into law.”

The Retail Industry Leaders Association also praised the bipartisan vote in the Senate to pass the Marketplace Fairness Act. “The Senate’s overwhelmingly bipartisan passage of this legislation foreshadows the end of the special treatment of big online businesses at the expense of retailers on Main Street,” said RILA senior vice president for government affairs Bill Hughes in a statement. “After such a resounding vote in the Senate, we look forward to a constructive debate in the House to level the playing field for all retailers this year. For too long the Main Street retailers that are an integral part of their communities have faced tax rules that put them at a disadvantage to their out of state, online-only competitors. The Senate has voted to ensure that the market, not government, determines winners and losers. We are confident the House will reach the same conclusion."

Former Small Business Administration administrator Hector Barreto also praised Senate passage of the Marketplace Fairness Act. “Senate passage of the Marketplace Fairness Act puts us one giant step closer to a level playing field for America’s Main Street retailers,” Barreto said in a statement. “This legislation ends the discriminatory practice of treating retailers differently just because one sells on Main Street and the other sells over the Internet. Small businesses across America are not asking for preferential treatment from the federal government, just an honest chance to compete fairly without their competition having an artificial advantage. I applaud the U.S. Senate for standing up for small businesses that create most new jobs in this country.”

The bill now heads to the House. The effort received a boost last week when former Vice Presidential candidate and House Budget Chairman Paul Ryan, R-Wis., spoke in favor of the concept of ending special tax treatment for online-only retailers.

“I am so relieved that the Senate has demonstrated a commitment to closing this tax loophole, particularly our own Senators Portman and Brown,” said Jayson Waits, owner of Bloomtastic Florists in Upper Arlington, Ohio. “Our state is known for its small towns and vibrant Main Streets, and the Marketplace Fairness Act will finally end special treatment for large online sellers to ensure that all of us compete fairly.”

Members of the Alliance for Main Street Fairness, a coalition of over 7,000 small business owners, played a critical role in the passage of this legislation. Over the past two weeks, many of these business owners have communicated with their home state senators to refute assertions by eBay that the legislation would hurt small business.

“Unequal tax treatment has been killing jobs in South Carolina for years,” said Mark Johnson, owner of Elite Framing in Columbia, S.C. “This is not only a victory for small businesses, but for the communities they support here in South Carolina and across the country.”

“I truly appreciate Senators Warner and Kaine supporting Main Street on this issue,” said Donnie Caffery, owner of Good Foods Grocery in Richmond, Va.. “Governor McDonnell has also shown he knows what a positive impact passage of the Marketplace Fairness Act would have in countless communities across the Commonwealth. Now it is time for our representatives in the House to follow their lead and close the sales tax loophole once and for all.”

However, a number of senators spoke out against the bill during floor debate Monday, Sen. Ted Cruz, R-Texas, released a Web video and wrote an op ed stating his opposition to the bill. Sen. Jeanne Shaheen, D-N.H., also voice her disappointment after the Senate vote.

"I was disappointed the Senate passed such a misguided piece of legislation this afternoon and did so without giving the bill the comprehensive review that it deserved,” she said in a statement. “This Internet sales tax bill would impose countless new burdens on small businesses and could stunt their ability to expand and create jobs. We shouldn’t be imposing new and unnecessary burdens on New Hampshire small businesses, especially when there is no benefit for our state. This bill creates a bureaucratic nightmare by forcing New Hampshire small businesses to comply with 46 different state laws. This could result in serious economic consequences including audits, lawsuits, and a countless number of hours lost in productivity. I will continue to fight this policy because small businesses deserve our support, not more bureaucracy and red tape that impedes their ability to grow.”

Shaheen argued that the bill would require online retailers to establish a costly and burdensome sales tax collection infrastructure and filed amendments to the legislation to exempt New Hampshire from the new regulations. However, her office said that Senate leadership refused to consider Shaheen’s amendments to the legislation and instead fast-tracked the bill. They were able to secure passage this evening after bypassing Senate Finance Committee consideration of the bill. Senate Finance Committee chairman Max Baucus, D-Mont., has expressed his opposition to the bill.