Multi-State – Marketplace Fairness Act, What’s Next?

SALT Report 2526 – On May 6th, the U.S. Senate passed the Marketplace Fairness Act by a majority vote of 69 to 27 and soon the bill will be up for vote in the House of Representatives. If passed, the bill will require online retailers, who sell over $1 million per year to collect and remit sales tax in every state in which they makes sales, even if they do not have a physical presence in that state.

Not surprisingly, the MFA has been fairly unpopular with retailers and consumers as they feel it is likely to make online shopping more expensive. In fact, in a recent survey 60% of those polled said they oppose the bill entirely, 40% said small online retailers are already overtaxed, 24% said it was unfair to small online retailers, 46% oppose the bill for multiple reasons, and 54% said they would cut back on their Internet shopping if the bill passes.

Why the opposition? For retailers, the fear is that the bill will subject them to an increased audit risk as well as increasing the costs associated with complying with the new tax laws. Both of these factors will likely result in lost jobs and revenue, as compliance and audit defense costs would be extraordinarily burdensome and expensive, especially for a smaller business.

Others oppose the bill because of the taxing nightmare that will arise as retailers will be required to keep track of more than 9,600 sales-tax jurisdictions across the country. For example, a $1,000 television delivered into New Jersey would have a $70 tax, while a resident of Maine would pay $50 in sales tax for the same item. Then there are the foods taxes, in Illinois, all candies are subject to tax, unless they contain flour, like Whoppers, and in other states all candies, regardless of the addition of flour are taxable. In some jurisdictions, cotton candy is considered a non-taxable food, and in other jurisdictions it’s taxable as entertainment or candy. Good luck finding software that can solve these tax problems for you.

Still there are others who argue that the bill creates an unfair burden for online retailers. Andrew Moylan with the R Street Institute in Washington, D.C., says that if the bill passes online retailers “will be required to quiz purchasers about their location, look up the appropriate rules and regulations in each taxing jurisdiction across the country, and then collect and remit sales tax for that distant authority. No brick-and-mortar shop has to do this for in-store sales, and yet every online retailer would have to do it for remote sales.”

While the bill easily passed in the Senate, it is likely to face stiff opposition in the House as many anti-tax Republicans have threatened to take a tougher stance against it. Perhaps the Marketplace Fairness Act will go the way of other sales tax bills that have had bipartisan support; they pass one vote and then languish in Congress, never to be heard of again.

For Further Information

Senate Bill 743