Marketplace Fairness Act: Is Change Around the Corner?

Congress has shelved and unshelved the proposed Marketplace Fairness Act for years now. The act, which the House passed in July and is expected to hit the Senate floor this September, focuses on enacting legislation that would allow states to collect the sales and use tax from Internet or remote sellers. At the most basic level, the act would levy a tax on online purchases.

For brick-and-mortar stores, this is a relief. As David French, Vice President of The National Retail Federation said in July, “The retail industry has rapidly evolved over the last two decades with e-commerce and mobile commerce, and it is time for Congress to eliminate the sales tax disparity, which disproportionately impacts community and independent retailers.”

Yet, others fear the potential implications of the bill, with many online retailers concerned about the impact of an additional tax on their bottom line. Online retail giant eBay has been vocal in opposing the bill’s passage, maintaining that the one million dollar figure is arbitrary. “No small business should face new taxes,” Brian Bieron, eBay’s senior director of global public policy said in an interview with AllThingsD last year. Regardless of which side of the debate your company may fall on, you may be impacted. Thus, companies would be smart to keep the proposed legislation’s potential effects top of mind. Here are some considerations:

Contrary to popular belief, Internet sales tax transactions are not exempt in any U.S. states.

However, a seller who does not have a physical presence in a particular state (store, factory, etc.) is not liable for the collection and remittance of sales tax on goods and services sold. This proposed legislation would change that. The Act would require worldwide online retailers with annual gross receipts of $1 million or more in the United States to register and collect sales and use tax in states where they were previously not required.

Some states have already embraced the change.

Although Congress has yet to pass any mandates regarding the remote filing act, many states such as New York, California, Texas and Pennsylvania have already moved forward with alternative and creative measures, by passing aggressive new laws that can create nexus by “click-through” or “affiliated” activities. Some online retailers fear that the addition of a sales and use tax could impact their marketability, affecting their online traffic and even their bottom line. Using as a test case, two independent studies conducted by Ohio University found that in five states where taxes were collected on online purchases, sales fell 9.5 percent.

Where does your business stand on the Marketplace Fairness Act, and how do you think its passage could impact your bottom line?