The Marketplace Fairness Act update: where does this bill stand?

Fairness Act

Fairness Act

Marketplace-Fairness-Act

The Marketplace Fairness Act continues to gain momentum in Congress. On May 6th, the U.S. Senate passed this bill by a vote of 69-27. This puts the United States that much closer to collecting sales taxes on remote sales. The current Senate bill gives an idea of what this future tax environment could look like for every U.S. business.

Applies to nearly every business, not just internet retailers

While the Marketplace Fairness Act (MFA) is discussed as a bill impacting internet retailers, it could have implications for nearly every business making out-of-state sales. As written, the bill says it applies to “remote sellers” and doesn’t use the words “internet” or “online” anywhere. This creates a very broad definition and could include any business that makes sales in any state where it does not have nexus, which would apply to both brick and mortar and online retailers.

Small seller exemption

The current bill has a provision that would exempt retailers if their prior-year gross U.S. remote sales total less than $1 million. Any business making sales in states it doesn’t already collect tax in totaling $1 million or more collectively would be subject to collect and remit taxes to any state that has collection authority – chiefly the states signed on to the Streamlined Sales Tax Agreement.  This gross total includes all sales, not just taxable sales. There is also no minimum sales amount per state, meaning  that even a single $10 sale would require the remittance of the tax along with a sales tax return.

Concerns over foreign competition

The motivation for the MFA is that it is supposed to level the playing field for brick and mortar retailers by taking away the “unfair advantage” internet sellers have enjoyed by escaping out-of-state taxation. However, some critics are wondering if this law would now simply shift this advantage solely to foreign companies.

Right now, the bill doesn’t say whether non-U.S. based companies will be expected to collect sales taxes from American consumers. If they don’t, foreign retailers would have an advantage over American retailers. This could also create an incentive for American companies to move overseas.

What happens next?

Now that the MFA has cleared the Senate, it moves  on to the House of Representatives (H.R. 684) where it will go through a formal committee review before it is brought to the floor for a vote. During this stage, the bill could be changed significantly or could stall completely. Some believe the bill is likely to pass the House as it has a fair amount of momentum and lobbying power behind it. On the other hand, several key representatives have voiced strong opposition to the bill and could take steps to block or alter it during review.

What is particularly important to retailers is what happens to the small seller exception. There is a push to raise the minimum sales amount so more businesses would be exempt from the requirement to collect  the tax.

While the MFA still has a long way to go before becoming law, it’s now gone farther than any of the other internet sales tax bills that have come before congress to date.

We’ll post updates as this legislative process continues or you can follow the bill’s progress.

Marketplace Fairness Act progresses to Senate debate

Marketplace Fairness Act progresses

Marketplace Fairness Act progresses

Marketplace Fairness Act Updates

This month the United States took a big step toward throwing out the concept of nexus. On April 22nd, the Senate voted 74-20 to bring the Marketplace Fairness Act (S.743) to the floor for debate. This is significant progress as bills typically need at least 60 votes to clear this procedural hurdle.

The Senate titled this measure “A bill to restore States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.”

If the Marketplace Fairness Act passes as it is written now, online vendors would need to collect sales taxes for the state and local governments of its U.S. buyers, wherever they may be. Businesses that have less than $1 million worth of out-of-state sales would be exempt from this requirement. States would then agree to provide assistance to help each online retailer calculate the tax liability.

The White House announced that President Obama supports the passing of this bill as he believes it will help states raise needed revenues while also creating a more fair playing field for brick and mortar businesses, which often complain that online businesses have an unfair tax advantage.

Major online retailers Amazon and eBay are divided on this bill. eBay is strongly against it and has been asking its supporters to contact their government representatives about the issue. eBay representatives contend that this bill would create a huge burden for online retailers and would make it very different for small businesses to function online.

Bill opponents point out that there are so many different tax situations across the country, online retailers could be stuck having to keep track of potentially thousands of different scenarios. eBay proposes that the exemption be increased from $1 million to no less than $10 million in annual out-of-state sales.

Amazon, the largest online retailer, supports the bill’s passage. This is partly because Amazon already collects sales taxes in many states because it has lost multiple court battles which found its’ order fulfillment centers to have meet the standards for creation of nexus.. Amazon stands to benefit from the potential standardization of sales tax regulations.

This bill still needs to pass votes in the Senate and the House of Representatives before it becomes law. However, Monday’s procedural vote puts the Marketplace Fairness Act one step closer to becoming a reality.

Follow the bill’s progress at Congress.gov

Virginia looks to replace declining fuel tax income

Virginia fuel tax income

Virginia fuel tax income

Virginia is the first state in the nation to propose replacing its 26-year-old gasoline tax in favor of an increase to the state’s sales tax.fuel tax income

Republican Gov. Bob McDonnell, in road and transit plans recently revealed to the Virginia General Assembly, said the 17.5 cent-per-gallon gas tax  is no longer a viable source of revenue. He says inflation has reduced the tax’s purchasing power by half since its inception in 1986. That, along with increased construction costs and significantly improved fuel economy  has significantly reducing the tax’s money-generating ability and it is no longer up to the task of providing for Virginia’s congested roadways.

The governor believes a much more reliable source of income would be an increase to the state’s sales tax which can grow with the improving economy.

McDonnell’s proposal would increase the state’s sales tax from 5 percent to 5.8 percent. He’s declared that the entirety of the increase, plus a greater portion of the sales taxes already earmarked for transportation, would go directly into the state’s roadways. He estimates such a change would bring in more than $800 million over a five-year period.

Estimated income numbers hinge on Congress passing one of the bills requiring out-of-state retailers to pay Virginia sales tax which McDonnell believes would bring in an additional $1.1 over five years.

The governor’s plan to maintainVirginia’s roads also relies on a continuation of the diesel fuel tax, increased vehicle registration fees, and a hefty surcharge on alternative-fuel vehicles.

Main Street Fairness Act vote stalls in senate

Fairness Act vote

Fairness Act vote

main-street-fairness-act-vote-stalls-in-senate

Senator Dick Durbin (D-Ill.) introduced the Marketplace Fairness Act before congress this year and is aggressively promoting a vote on the legislation.

A last-minute attempt to push internet sales tax legislation through this year by attaching it to another bill failed when the senate closed debate without considering it.

The Main Street Fairness Act, S. 1492, (alternately called the Marketplace Fairness Act), with bipartisan support from many sources, had been added as an amendment to the National Defense Authorization Act. Hopes of getting the legislation to move through the senate in 2012 died abruptly when the senate voted Dec. 3 to close debate on the NDAA without considering the amendment.

Senators Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) have been aggressively promoting the act claiming it will promote simplification and fairness in the administration and collection of sales and use taxes. The legislation will purportedly level the playing field for brick-and-mortar retailers that have been crying foul saying they are at a disadvantage because they have had to collect sales taxes in the jurisdictions where their stores are located. Internet vendors, on the other hand, see it as an attempt to overturn a 1992 Supreme Court decision and force them to collect sales tax on all transactions irregardless of nexus thereby creating an insurmountable sales tax collection and remittance nightmare.

A spokesman for Durbin says the senator is keeping his options open and intends to continue pushing the legislation toward a vote, whether as a stand-alone or part of a larger bill.

Internet Sales Keeping Pace with Brick and Mortar

Internet sales keeping pace with local brick-and-mortar sales so far this year

Preliminary data show internet sales keeping pace with local brick-and-mortar sales so far this year. With this much revenue on the line, states are scrambling to inform the cyber-consumer about Use taxes due on internet purchases.  To date, Use tax compliance has been, to put it mildly, not good.

Whether or not states have special internet sales legislation on the books, most states require the payment of use tax on any untaxed purchase, including those made over the internet or from out-of-state vendors.

What is consumer Use tax?

Use tax is due on any taxable tangible product purchased by non-tax-exempt entities when no sales tax was collected at the time of purchase, regardless of where the item was purchased. This includes items purchased over the internet or from out-of-state sources including Amazon, eBay and others.

States scramble to get a cut of online shopping taxes

States have identified unpaid use tax as a significant loss of revenue during a time when budgets are stretched to the breaking limit. An estimate by the Streamlined Sales And Use Tax group claim $20 billion a year is being lost.

Identifying the problem and figuring out what to do about it are two different things. Most states have been at a loss as to a practical remedy. Some have included a self-reporting section on the state income tax return. Other states rely on press releases, news coverage and guilt. None of these methods have so far show much effect on compliance with some sources saying as little as 20% of these taxes are collected.

The Main Street Fairness Act

Federal legislation is being closely examined by both the senate and house to try to come up with a “fair” solution to this uncollected tax problem.

The Main Street Fairness Act, which has failed in previous years, was introduced this year by Sen. Richard Durbin (D-IL) and is currently being reviewed by the Senate Committee on Finance. The bill proposes to promote the simplification, administration and collection of sales and use taxes.

Unfortunately, like most of the issues involved with taxes, this one seems to have little chance of resolution before the year’s end. You can track the bill’s progress at http://www.govtrack.us/congress/bills/112/s1452.

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