The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.
Simplification is required because of two Supreme Court rulings (Bellas Hess and Quill, described below) cite concern that collecting sales tax for multiple states would be too difficult.
The Marketplace Fairness Act requires that states must simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy. Specifically, states seeking collection authority have two options for simplifying their sales tax laws. (Sourced From MFA)
Here is the Bill That Has Been Introduced
As you know, we’ve been following the online sales tax debate for years. From the Marketplace Fairness Act to states taking matters into their own hands, it’s been interesting to follow as lawmakers debate how to handle imposing state sales tax on internet retailers. It’s especially difficult given the wide variety of taxes and fees that would need to be imposed at a state, county and city level. Read More
Sales tax law changes and discussions in 2017 are likely to look a lot like those of 2016, with one possible exception.
The repeating discussions and activities will include:
1) Expanding the sales tax base to include more services and digital goods.
2) Congressional hearings on the Marketplace Fairness Act without enactment of legislation.
As we shared last week, Congress recently introduced two new online sales tax bills: Sensenbrenner’s H.R. 5893, which would make it harder for states to impose sales tax, and Goodlatte’s Online Sales Tax Simplification Act of 2016, which would make it much easier.
All of the energy and focus on the Marketplace Fairness Act (MFA) has lulled many online sellers into a false belief that they do not need to collect retail sales tax on their online sales until Congress takes action on the MFA. What many online sellers forget is that states can still require online sellers to collect retail sales tax if the online sellers have physical presence nexus in a state. Further, this physical presence nexus need not be necessarily connected with their online sales.
Recently, I have worked with a number of companies facing significant tax exposure for uncollected retail sales tax on their online sales. Although these sales are generated exclusively from customers developed over the Internet, these companies failed to recognize that physical presence of their employees or representatives pursuing wholesale sales Read More
It is difficult these days to read an article about sales tax without coming across issues with online companies such as Amazon. For those of you that do not spend most of your day hunting down interesting sales tax articles, please just take my word for it. In fact, before Congress right now is an attempt to nationalize sales tax collection by passing a law known as the Marketplace Fairness Act (MFA). This law would essentially cause most online retailers, like Amazon, to collect tax in every jurisdiction to which they sell. Not surprisingly, and despite the literally thousands of articles discussing the MFA and online sales tax collection, most consumers and many commentators still are not understanding how a sales tax works.
By way of background and for review for many of you, a sales and use tax work Read More
If Congress enacts the Marketplace Fairness Act (such as S. 743) to allow states to require some remote (non-present) vendors to collect sales tax from customers in their state, states should see a revenue increase. The revenue is not a new tax because their residents should have been paying use tax on these purchases from remote vendors, but because individuals and businesses are not 100% use tax compliant, the sales tax from remote vendors would likely be greater than use tax collections. At least one state has given consideration to what to do with the revenue.
By The Way – the House Judiciary Committee held a hearing today (March 12) on alternatives to the MFA – I’ll have more on that later. Read More
In the past few months, I have been interviewed or heard stories about state and local government practices to generate revenue in new and unusual ways. For example, some California cities are willing to enter agreements with vendors to locate a sales office in their borders and receive a return of some of the sales tax generated. I think the opportunities for doing this will increase when/if the Marketplace Fairness Act passes. With the MFA, more vendors will be required to collect California sales tax despite the lack of a physical presence in the state. So, why not locate some small office in a city that is willing to rebate some of the tax collected for the city to the vendor?
Another instance is a government hiring a third party to help it collect taxes owed. While that might seem innocent enough – outsourcing, it raises a variety of issues. There is a nice write-up of many of these issues in a Action News Alameda article I was interviewed for a few weeks ago – “City of Alameda Moves Forward With Contingency Fee Business Tax Audit Effort,” David Howard, 7/30/13.
The tax sharing is problematic as this is not what we pay taxes for. Taxes are to help fund government operations. When people learn that part of their taxes go into the coffers of a vendor, they will think that the government doesn’t really need the revenue so why not lower rates and will be puzzled about what the purpose of tax is. This is also a race to the bottom as local governments reduce their hard to generate tax revenues and compete against each other for tax dollars. Read More
When the Senate overwhelmingly passed the Marketplace Fairness Act (“MFA”) (S. 743) on May 6, 2013 tax professionals and other CPAs naturally took notice. Many journalists and bloggers have taken notice, too, writing prolifically about the so-called “Internet sales tax.” This is the closest such legislation has come to being enacted, and so naturally it is newsworthy. However, many in their excitement have begun talking about the passage of this Act as if it is a foregone conclusion. So far the MFA has passed the Senate. But some say it has a tough road ahead in the House and that it may even be dead-on-arrival in the Republican-controlled House.
Will it pass? We don’t know and can’t predict. The only thing we can be sure of is that whether the MFA passes or not, sales tax nexus is and will continue to be a very relevant, complex issue demanding attention by businesses large and small and their CPAs.
False Belief Number One: If The Marketplace Fairness Act Passes, Everyone Will Have Nexus Everywhere. Nexus Will Be Obsolete.
We are actually hearing this statement in one form or another from many CPAs and other professionals. While we could agree that the physical presence aspect of nexus has been under pressure since the Quill case and that the pressure appears to be increasing every year, we can not agree that nexus would be obsolete. The MFA still has many questions that need to be answered. For example, if the MFA does pass in the House, what modifications will be made and what will the final version look like? Will all the states participate? What will be the minimum threshold? Read More
As a Tax Professional, you have the opportunity to influence the Internet Sales Tax Law. While Congress is on track to pass a nationwide Internet Sales Tax, you can make a significant contribution to improve it before it becomes law! The Open Government Foundation has designed an innovative platform for making line-by-line suggestions for improvements in the internet sales tax law.
TechCrunch has created a version of the “Project Madison” crowdsourcing legislative platform that enables readers to add, delete and amend specific passages in the upcoming tax law. Suggestions by tax professionals will receive the attention of Congressional Staffers. TaxConnections in support of TechCrunch needs your help to make a difference in this law – NOW!
Senate Bill S.743, the “Marketplace Fairness Act of 2013,” passed the Senate with overwhelming support and is on to the House of Representatives. TechCrunch launched a news civic channel to source and promote the most insightful ideas to pass on to government. This is a real opportunity to improve the Internet Sales Tax Laws while it has left the Senate and is on its way to the House of Representatives.
Here is exactly what you need to do: Read More