For many small businesses that sell online, the reintroduction of the two sales tax bills will affect them greatly. In a post written by Mark Faggiano, the founder of TaxJar summarizes how these two bills reintroduce internet sales tax in way that may make filing tax returns much more difficult. Today’s post will share information on the Marketplace Fairness Act and our next post will explain the Remote Transaction Parity Act.
Earlier in the year Congress promised to tackle tax reform in the spring, and that resulted in the reintroduction of two internet sales tax bills: the Marketplace Fairness Act (MFA) and the Remote Transaction Parity Act (RTPA).
We’ve written extensively about both of these bills in the past. In short, both of these are bills with bipartisan support, but very tilted toward the welfare of states and brick and mortar stores with no online presence. Unfortunately, and probably unknowingly, both bills will place a hugely unfair burden on online sellers if passed.
Recap of the Marketplace Fairness Act
If this act passes, online sellers who make more than $1 million in remote (non-home state) sales per year would be required to collect sales tax not only in the states where they already have sales tax nexus, but in any states where they don’t have a nexus at all. The $1mm is remote “sales,” and not profit.
As it currently stands, the precedent set in the Quill v. North Dakota case of 1992 protects retailers from being required to collect sales tax in states where they do not have a significant presence. This law would strip that protection away and require sellers to collect sales tax in states not only where they have nexus, but also where they have sales.
Example of how the Marketplace Fairness Act would affect an Amazon FBA seller:
Jean owns a home goods company selling through Amazon FBA and makes about $3 million in sales per year. She has nexus in her home state of Michigan and ten other states due to storing inventory in Amazon fulfillment centers. Because she wants to avoid future tax surprises and plans to sell her business some day, she’s currently collecting sales tax in all of her nexus states. If the Marketplace Fairness Act passed, she’d also be required to collect sales tax from buyers when she makes sales in the states where she has no nexus. This would add more administrative hassle, because she would also have to report how much sales tax she collected from buyers in all these states, and file sales tax up to 12 times per year in each of these states. Also, because the bill is a hodgepodge, she’d need to follow one set of rules for her nexus states and another set of rules for the states where she has no nexus.
Other aspects of the Marketplace Fairness Act:
- States can only require out-of-state sellers to file sales tax with one state taxing authority, rather than multiple local authorities (like the way Alabama, Colorado and a handful of other states require right now)
- Sellers can only be audited by a single state taxing authority within each state
- Remote sellers wouldn’t be required to file sales tax any more frequently that in state sellers. (I.e. a remote state can’t require you to file monthly when every in-state seller in your revenue bracket files quarterly)
Summary: The Marketplace Fairness Act is not fair to online sellers, the very sector that is growing the retail economy. While no one thinks that states should not have the sales tax they use to fund schools, roads and fire departments, there has to be a better way than subjecting small business owners to a Frankenstein of sales tax laws and making sales tax collection, reporting and filing even more complex.
In the next blog post, we’ll be discussing the Remote Transaction Parity Act and how it will similarly affect online sellers in a negative way.
As TaxJar’s Founder, Mark Faggiano’s mission is make sales tax simple for online sellers and has written several articles on the subject.
Image courtesy of [Sira Anamwong] at FreeDigitalPhotos.net