Marketplace Fairness Act: Internet Sales Tax Update

Here's what's going on with the Marketplace Fairness Act.

Here’s what’s going on with the Marketplace Fairness Act.

About a month ago we shared the latest news surrounding the Marketplace Fairness Act. However, given how prevalent this issue has been lately, it’s certainly worth sharing recent updates from the last couple of weeks.

About the Marketplace Fairness Act

As a recap, the Marketplace Fairness Act would allow states to collect sales tax from purchases made on the Internet. Although consumers are already supposed to be paying this sales tax, online retailers aren’t required to collect it the same way brick-and-mortar stores do. The Marketplace Fairness Act as currently written would require online retailers with sales in excess of $1 Million to begin collecting sales tax on all sales – a significant departure from current laws. Although the bill passed in the Senate back in May 2013, it never made it to the House floor. Last month, Senate lawmakers announced they planned to link the Marketplace Fairness Act to Internet access tax legislation during the lame-duck congress to help push it through.

New Marketplace Fairness Act Update

The latest news surrounding the Marketplace Fairness Act is that House Speaker John Boehner says it won’t pass this year. In fact, he doesn’t even want it on the House floor, preferring it, “Pass the House Judiciary Committee before coming before the full House.” His spokesperson explained, “The Speaker has made clear in the past he has significant concerns about the bill.”

Boehner’s decision means that, at least for the foreseeable future, online retailers will not need to collect the state taxes those with a physical presence in the state do.

How was Boehner’s decision received? There’s mixed feedback.

The Marketplace Fairness Coalition sent a letter to Boehner stating the bill is well supported and has been discussed in more than 30 Congressional hearings over many years. A dozen incumbent and newly elected governors are calling for Congress to pass the legislation as well.

Still, despite the Marketplace Fairness Act’s popularity, there are quite a number of those against it. A coalition of online retailers against the Internet sales tax legislation just lunched a website that explains why it opposes the bill.

Miles Consulting Group’s Take

What do we think? Although Internet sales tax is worth considering, there are a lot of potentially harmful ramifications to rushing the Marketplace Fairness Act through Congress. The bill is particularly harmful for small- to middle-market businesses. As currently written, it would require a business selling $1 Million in online retail to collect sales tax everywhere it makes a sale. We feel that threshold is too low. Also, the law doesn’t offer much guidance on how the eventual audit process might work. Can you imagine being audited by several states at once? That could happen. Again, small retailers are at a disadvantage because they likely don’t have a tax department that can handle such requests.

While we don’t have a crystal ball, we suspect that some form of this legislation will pass eventually. But we do applaud Speaker Boehner’s decision to postpone it at this time.

Want to know more about how this and other legislation could affect your business? Contact us to learn more! We’ll continue to share new updates as they arise, too.

Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit and the California Manufacturers’ Partial Sales Tax Exemption. To learn more, contact us today at www.MilesConsultingGroup.com.

Photo Credit: Death to the Stock Photo

2 thoughts on “Marketplace Fairness Act: Internet Sales Tax Update

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