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A Battle Over Internet Sales Tax Looms

In a 74-20 procedural vote, the Senate moved one step closer to passing legislation for an Internet sales tax Monday night.

But the bill is not without opposition. Sen. Kelly Ayotte, R-N.H., says she is gearing up for a fight to oppose the "big money-grab from the states."

"This is big retailers and big business lining up to put burdens on the Internet for small online business," she said on CNBC's "The Kudlow Report." "It is so wrong and it is a precursor to other things they will try to grab using the Internet, including taxing the Internet."

The legislation, known as the Marketplace Fairness Act, also won backing from President Obama on Monday.

"It will level the playing field for local small business retailers who are undercut every day by out-of-state on-line companies," White House spokesman Jay Carney said.

The Marketplace Fairness Act allows states to require large out-of-state retailers to collect online sales taxes. States can currently only require merchants within their borders to collect.

(Read More: A New Tax Could Send Shoppers Back to the Mall)

"It's really unprecedented to make our businesses tax collectors for the nation," Ayotte said.

But the bill has won bipartisan support from lawmakers and business, including online retail giant Amazon.com and Wal-Mart Stores, who say it will level the playing field between Main Street and e-street.

"The Marketplace Fairness Act is common-sense legislation whose time has come," Dan Crippen, Executive Director of the National Governors Association said. "This is not a new tax. Nor is it a tax on the Internet or on business. It is merely a means of collecting taxes already owed by consumers."

"At the most basic level, Marketplace Fairness is an issue of federalism: states must have control over their own revenues," he added.

The legislation includes an exemption for merchants that generate less than $1 million in annual out-of-state revenue, but many online merchants, including eBay say it unfairly burdens small online merchants.

(Read More: eBay Starts Massive Push Against Sales Tax)

"This legislation treats you and big multi-billion dollar online retailers - such as Amazon - exactly the same," eBay Chief Executive John Donahoe wrote in emails to eBay users on Sunday. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."

A final Senate vote on the bill is expected later this week.

--By CNBC Associate Producer Elizabeth Schulze. Follow her on Twitter: @ESchulze9

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