This past Monday, May 5 2013, the Marketplace Fairness Act of 2013 passed through the Senate, halfway on its journey to becoming law. The bill, which once passed will allow states and local jurisdictions to collect sales and use taxes from online merchants – even if they have no physical presence in that state (called a “nexus”) has the backing of President Obama but still needs to pass through Congress, where it is expected to be met with a not-inconsiderable amount of resistance.
A bit of background:
The current state of internet sales tax laws, a company is only responsible to collect and remit sales tax on behalf of states in which they have a nexus, stems from the ruling rendered by the Supreme Court in the landmark Quill office-supply case. The Supreme Court’s decision was based on the logic that it would be crippling, and most likely impossible, for companies to keep abreast of the myriad tax laws across the nearly 10,000 districts. As eCommerce grew brick and mortar stores found that they were losing sales to their online counterparts and States found themselves with billions in lost tax revenue. Coupling those facts with technological advances which automate all the accounting requirements, largely removing any burden from e-companies, led lawmakers to decide it was time to make a change (but mainly it was the billions in tax revenue).
Who’s going to be affected?
The Marketplace Fairness Act of 2013 would allow any state which is a member of the Streamlined Sales Tax Governing Board to mandate the collection of sales and use taxes beginning 90 days after the bill is enacted; currently the SST has 22 member states. Nonmember states would be required to meet certain requirements and supply free software to collect sales tax, or they could just join the SST – a far more likely scenario; businesses with less than $1million in yearly sales are exempted. Finally, this bill is not going to create any sort of new Internet tax, it is simply a way for states to collect their usual sales tax.
What you must do to become compliant:
At this time there are 6 companies whose sales-tax solutions are approved by the SST, to become compliant e-tailers would need to implement one of these. Unfortunately, these 6 products aren’t compatible with many platforms, and integrations can be tricky and costly for others. There is no word what will happen with those websites who use incompatible platforms.
The whole thing seems kinda overblown, right. I mean, what’s the big deal? You add some software, when April comes it tells you how much to pay in taxes – bada-bing bada-boom you’re done. Well, it’s a bit more involved than that. Firstly, even though the bill requires states to provide the appropriate software free to merchants there are still costs which will be incurred, like installation and integration, and future tax liability issues which are sure to creep up. Additionally, while it may be that at some point all the attendant processes may be automated at this time there is nothing built to handle returns or losses and accounting software is currently not built to maintain separate sales tax listings for each state and making it so will require businesses to spend many man-hours and much money. Finally, there is simply no telling how the loss of the competitive edge gained by the lack of sales tax will affect e-businesses. My advice to merchants is to immediately begin researching what the new law will mean to you: Do any of the free software packages work for you? Is your accounting software capable of handling the increased workload? There is a strong possibility that the bill will come into effect around the upcoming holiday season so there’s no time to waste.