Is It Time for the Marketplace Fairness Act?

Legislation, the Marketplace Fairness Act of 2013 (H.R. 684; S. 336) was introduced in Congress last week. The bill would effectively impose state sales taxes on Internet purchases even though sellers are in different states from buyers.

More specifically, the law would allow a state to enforce its sales tax rules against Internet sellers in other states. The purpose of the legislation is to put bricks-and-mortar stores based in states with sales taxes on a more competitive basis with Internet-based sellers who, until now, have offered their customers a sales-tax free ride.

The challenge for Internet-based sellers is to deal with 9,600 sales tax jurisdictions (counting not only state but local sales tax rates). The bill addresses this problem by requiring states to simplify their sales tax rules on “remote sales.” Toward this end, states must set up a single agency for sellers to deal with for collections, filing returns, and audits. States must also make available to Internet-based sellers at no cost the software that can be used to make them sales-tax compliant. Sellers that use certified software providers (currently Avalara, ADP, Accurate Tax, Exacto, and FedTax) to figure collections would have no liability for any errors made by these companies.

Alternatively, states can work within the existing Streamlined Sales and Use Tax Agreement.

The bill would not necessarily change sales taxes, but would not bar any changes either.

Small business exception

Despite the simplification requirements in the bill, sales tax collection on remote sales, followed by remitted collections to multiple states, and filing sales tax returns in multiple states will be burdensome. The good news: The bill would exempt “small sellers” from collections and other related sales tax responsibilities. The exemption would apply to businesses with less than $1 million in gross annual receipts from domestic online sales.

Prospects for passage of the bill

The idea of requiring remote sellers to collect sales taxes is not new. The Main Street Fairness Act was a regular feature on the legislative calendar in recent years but failed to gain passage.

This bill is different and has a greater chance of success. It has extensive bi-partisan support and the support of a number of major business groups, including NFIB and the National Retail Federation. (It is opposed by the American Catalog Mailers Association and eBay, among others.) And, because a number of states are in a revenue crunch that could be somewhat alleviated by new sales tax collections, there is extensive support from state legislatures and governors.

Find out more about the bill and its progress in Congress here.

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