Marketplace Fairness Act
  • July 26, 2013
  • Peter Christoper
  • 0

Passed by the Senate in May 2013, the Marketplace Fairness Act (MFA) is a controversial bill that will require online, phone and catalog retailers to collect sales tax. Currently, sales tax is only charged if a retailer has physical presence, such as a call center or warehouse in the state the purchaser resides. Remote retailers opposed to the legislation claim it will become a burden to file and calculate sales tax to all the right states. Proponents of the bill argue it will level the playing field with existing brick-and-mortar retailers.

When it comes to eCommerce, sales tax is very complex. Consumers who buy goods remotely are required to pay sales tax when they file their tax return. Many shoppers ignore this requirement. Supporters of the proposed legislation debate the MFA will merely enforce existing tax laws.

The act will require each state to provide free sales tax software to help online retailers collect and file sales tax. Challengers to MFA argue the free software will merely provide rates for sales tax and will not categorize products, which is essential to applying sales tax to different goods sold. Many states have their own specific considerations for applying sales tax to different goods, such as groceries, clothing or electronics. In reality, upgrades to retailers existing accounting software and shopping cart platforms will be necessary to correctly calculate sales tax. Remote retailers will be responsible for these updates to and a dedicated person or team will be required to correctly file and prepare to sales tax collection.

According to Forrester Research, revenue generated in the U.S. alone will grow 30% between now and 2016. Online retailer and supporter Amazon, claim they currently collect sales tax from more than half of the U.S. population. Retailers like Amazon, who look to expand their physical operations in more states to compete with big box stores, are in support of online sales tax. With that being said, the MFA exempts retailers with less than $1 million in annual gross sales. This small seller exception is debated by MFA opponents Ebay and Etsy. These online selling communities argue the small seller exception is too low and should be raised to $10 million in annual gross sales. Opponents fear the $1 million revenue threshold will hurt their seller communities, as many have much lower net profit, if any profit at all.

What is next for the proposed MFA is unclear, as retailers are in limbo regarding the legislation. It is understandably obvious there are many advocates as well as adversaries to the MFA. Many large organizations like AT&T and Verizon are still undecided in their support. There is also the complicated fact that five states do not charge sales tax. Oregon, Montana, Alaska, New Hampshire and Delaware will now be required to charge sales tax to purchasers outside of their state. If passed by Congress, there will undoubtedly be provisions made to the bill before it is put into effect; the earliest date being October 1, 2013.