The United States Senate has just passed the Marketplace Fairness Act, legislation aimed at giving states the power to better enforce their sales tax laws and to level the playing field for Main Street merchants.
As the bill now moves to the U.S. House of Representatives, Daszkal Bolton would like to apprise clients with bricks and mortar retail stores that things may get better as tax rules that put them at a disadvantage to their out of state, online-only competitors are about to change. However, our clients that do business on the world wide web will also be affected and will need to do some advance planning should they soon be required to collect sales tax in states where they have no physical presence.
The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”) with over $1,000,000 in total sales, 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 prior Supreme Court rulings citing 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:
Option 1: A state can join the twenty-four states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA), or
Option 2: Alternatively, states can meet essentially five simplification mandates listed in the bill and agree to:
1. Notify retailers in advance of any rate changes within the state 2. Designate a single state organization to handle sales tax registrations, filings, and audits 3. Establish a uniform sales tax base for use throughout the state 4. Use destination sourcing to determine sales tax rates for out-of-state purchases 5. Provide free software for managing sales tax compliance.
With states adhering to these provisions or the similar measures in SSUTA, retailers across the country will find collecting sales tax for multiple states much easier than it has ever been in the past.
The retail world is a very different place today. In the e-commerce age, keeping track of a few thousand local tax rates is no longer an insurmountable technical, administrative, or financial burden – certainly no more difficult than calculating real-time-shipping, a common feature on most web sites and online sales marketplaces. The Marketplace Fairness Act will help the many states now facing significant budget shortfalls even though have already been reducing their spending levels and increasing collection and enforcement efforts based upon their existing sales and use tax laws. However, a State can only enforce these laws within its own borders unless (or until) Congress acts. Simply put, without the Marketplace Fairness Act, the States are unable to require remote retailers to collect the existing sales or use tax already mandated by state laws for in-state residents.
Since companies would be required to collect sales tax in 24 states as early as October 1, 2013 should the Marketplace Fairness Act soon become the law, we recommend that companies selling in e-commerce review existing sales tax compliance measures and required changes in order to be prepared for this major shift in sales tax compliance.
Contact Us: We will provide periodic updates on the status of this legislation. In the meantime, should you have questions regarding this, or other state and local tax issues, please contact Faith Gorman, State and Local Tax Director at 561-367-1040 or [email protected]