Whether your brick-and-mortar business sells goods online or you are solely an Internet retailer, you must get up to speed on the Marketplace Fairness Act – a piece of legislation which passed the Senate in early May and is currently under hot debate in the House of Representatives. It requires all “remote sellers”, including online stores, earning $1 million in revenue or more to collect taxes for every state where they have customers.

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W
hether your brick-and-mortar business sells goods
online or you are solely an Internet retailer, you
must get up to speed on the Marketplace Fairness
Act – a piece of legislation which passed the Senate in
early May and is currently under hot debate in the House of
Representatives. It requires all “remote sellers”, including
online stores, earning $1 million in revenue or more to
collect taxes for every state where they have customers.
If the Marketplace Fairness Act becomes law it will mean
thousands of dollars in new revenue for each state because
they will now be collecting sales tax from Internet shoppers
who once avoided the additional fee by ordering online. The
bill would force online shoppers to pay sales tax for the state
to which they are having their items shipped. Currently, most
online shoppers are subject to a self-reported Use Tax, which
is typically the same rate of tax.
The new law will require every state to provide remote
sellers with free software that calculates all taxes due.
Under the Streamlined Sales and Use Tax Agreement
(SSUTA), adopted by a total of 24 states, only five software
providers are ‘certified’ to provide such a program. States
that choose not to join the SSUTA will be provided an
alternative process within the act. This option will contain
five mandates which must be followed and implemented
into the state’s tax plan before enforcement of the
law. Additionally, these states as well as those listed
under the SSUTA must wait a period of 180 days before
collection, starting the first day of the financial quarter after
enactment.
The Small Seller Exception
As we await a final decision from the House on the
Marketplace Fairness Act, or S. 743, it is important to
understand its significance for employers as well as
individuals. A noteworthy piece to the legislation is Section
2(c) also known as the “Small Seller Exception”, exempting
remote sellers who earn less than $1 million in gross
annual receipts. Independent vendors who use third-party
sites, such as Etsy or Amazon, may view the $1 million
cut-off negatively because in order to use these sites they
must pay transaction fees. Right now these fees are not
being incorporated in the annual calculation.
Revisions
Several lawmakers and companies have publicly voiced
their opinion on the Marketplace Fairness Act. Some
discussions around the act include making revisions to the
current law before any further action is taken. The Small
Seller Exception may be just a small note included in one of
the six sections of the act; however, it arguably has created
the most debate among small- to mid-size business owners.
One major concern is the administrative burden this tax
would place on small businesses. Opponents to this rule,
including eBay, argue that the exemption level is too low and
propose $10 million should be the cut-off value.
If you’re an online business, based on your state’s
membership in the SSUTA, your future tax collection
process is dependent on the Marketplace Fairness Act.
Though much is left up to debate, including several
revisions that could affect its enforcement, the time to
prepare for a change in sales tax law is now. If passed in
its current state, you must be prepared to take action in as
little as six months to meet these new filing requirements.
Connect with a tax professional now to prepare properly.
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Tax & Accounting
The Marketplace Fairness Act: The Tax Man
Cometh & He’s Heading for the Internet
Article reprinted from Fall 2013GROWTHBIZS T R A T E G I E S
ANNA HOWELL
CBIZ MHM, LLC • Memphis, TN
901.685.5575 • ahowell@cbiz.com