The State of the Marketplace Fairness Act

Jul 17, 2013 12:15 PM  By

In May, the Senate passed the Marketplace Fairness Act with a vote of 69-27 and clear bipartisan support. The bill is still under review by the House Judiciary Committee where more detailed research into the impact of the bill on online retailers is expected. With a Republican-controlled House that includes many anti-tax representatives, passage will be more difficult.

The measure would require that retailers with online revenues over $1 million annually collect state tax on remote (online, catalog, phone, etc.) sales regardless of their location. Currently, if an online retailer sells a product in a state where it does not have a physical nexus, they are not required to collect tax, but the buyer is expected to claim the tax on their annual tax return – a rule that almost no one follows.

Organizations that oppose the measure and those who support it have been extremely vocal about their opinions on the subject.  Two of the leaders in the industry, eBay and Amazon, fall on opposite sides of the argument.

The Supporters’ Position
Supporters argue that online retailers have enjoyed a 5% to 10% price advantage for years by not collecting taxes and the MFA simply levels the playing field by closing that price gap.

Listed on the MFA webpage of business supporters, online retail giant, Amazon, stated that it has long supported simplified tax rules that are applied “evenhandedly” to all but the very smallest retailers. The simplified tax rules Amazon refers to are part of the Streamlined Sales and Use Tax Agreement, or SSUTA.

Under the MFA, states that want to receive tax revenues must standardize and simplify their tax codes according to this agreement. States that want to collect taxes but choose not to comply with SSUTA still have to meet five simplification mandates outlined in the bill. In both scenarios, free software is available to retailers.

Some may be surprised that Amazon would support a bill that increases its own taxes, but in reality they are already paying taxes in many states due to affiliates and fulfillment centers scattered across the country – and they are adding more of these each year. So although not collecting sales tax was once a competitive advantage over brick-and-mortar stores, it has slowly diminished. Passage of this bill will simply place the same tax collection burden that Amazon already deals with on its online competition.

The White House has also expressed its “strong support” for the bill with the statement it released on April 22, 2013.  The Administration expects that the bill will level the playing field between small brick-and-mortar retailers and large online retailers. It also believes that the additional revenue will allow cities and states to invest more heavily in education and other services such as police and fire protection, roads and bridges, and health care.

The Opposition’s Stance
The opposition’s outlook is not quite as optimistic.  They argue that it is unfair to make a company that has no presence in a state to collect taxes on its behalf, especially when that retailer does not benefit from the services that state provides.

Other opponents believe that beyond how “fair” the bill is, the MFA in its current version places undue burden and cost on retailers and fear that it will cripple small businesses. eBay, in particular, has lobbied extensively to bring “greater balance to the legislation” by raising the revenue threshold to $10M in sales or fewer than 50 employees. Without change, opponents are concerned that small retailers will stunt their own growth to remain under the $1M threshold, which not only affects that business’ individual success but the entire economy.

The eMainStreet Alliance, a grassroots group of more than 300 online retailers, has quantified the potential impact on small retailers. Even with the free software, the Alliance estimates the cost of compliance for up to 9,600 tax venues will range from $20,000 to $300,000 depending on the number of states and complexity of the industry. In many cases, this would exceed many business’ annual profits.

eMainStreet also warns that audits could not only put small retailers out of business but could personally harm business owners. The MFA includes a safeguard that limits audits to not more than one per state per year. But even with that limitation, small businesses would still be subject to audits from up to 46 states where they have no physical presence, political representation or right to vote. Furthermore, most states can hold a company’s “responsible person(s)” personally liable for unpaid sales tax liabilities, which puts the personal property of the small business owner at risk.

The Debate in the House
With the fate of the bill in the hands of the House, the debate is heated. Anti-tax legislators view the bill as a new tax, while their less conservative counterparts say it’s already been in place for years but just hasn’t been collected. There is also a divide within the Republican Party itself with younger Republicans opposing the bill and older ones (including the bill’s sponsor, 69-year old Wyoming Republican Mike Enzi) supporting it. In fact, every Republican under 50 in the Senate voted against the bill.

A Message to Merchants
Merchants should keep a close eye on the debate and actively explore options for compliance should the measure pass. There are many tax solution providers that are providing free education on the subject as well as integration software to ease the transition should it be necessary. But the key is preparation. Have a plan and, if the time comes, be ready to execute.

For a full list of registered opponents and supporters, details of the bill, and news coverage, please visit www.marketplacefairnessact.org.

Lisa Steinhart is the vice president of sales and marketing at nChannel.com.

  • Susan Lindsey

    Please reference the article about the Marketplace Fairness Act
    chasing as ghost. http://www.rollcall.com/news/washington_is_chasing_a_ghost_on_internet_tax_revenue_commentary-224833-1.html?pg=

    Mostly excluding Amazon, which can now be increasingly included as
    it establishes warehouse nexus and, therefore is now pro-MFA, in 2012 83% of
    Internet sales (about $225 and $184.194 adjusted (based on Us Census bureau
    completed in 2012, http://www.rollcall.com/news/washington_is_chasing_a_ghost_on_internet_tax_revenue_commentary-224833-1.html?pg=

    Therefore, this leaves around $38 billion (and less than $38 when
    adjusted) that needs to be taxed. Any where from 2 to 5% of states additional collecting use tax, woul decrease this amount to $34.399 billion gross out of which the use tax must be calculated. If we use an average tax
    figure, say 8.5%, that equates to $3.2 billion % (under $4 billion) that would
    be owed by ALL the 17%. Exactly how much is owed by the qualifying online retailers is uncertain, but they constitute a
    small portion of the 17%. We know that only 1% of all retail generate $1 million sales or more. So if we take that figure, would be remittedthroughout the country (45 states, 600+ Native America tax districts, andterritories) – an amount that won’t pay the $250 million that Virginia expectsto pay its budgeted new transportations cost or the other large amounts the MFAhas led the states to believe that it can receive. In fact if you divide $3.2by 45 state, we average $71 million X average of 8.5% state tax, then eachstate would receive, on the average around $6 million, but amount would be evenlower when other sales tax districts cited above are included. http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

    The actual use tax generated for states amounts to diddle squat. Not only does the costs to the businesses, as determined by the AAA-CPA exceed the use tax collected, but the tax payer will have to pay the implementation costs (software and audits) that will further render this act fiscal foolishness! This act hurts smaller business American and asks that tax payers fund the growth of big box companies in the U.S.A.

  • Susan Lindsey

    Also, I believe the proMFA camp likes to polarize matters in a false, self-serving manner. When it comes to use tax violations, it’s not mainstreet versus online. Even many smaller businesses are brick n’ click. eMainStreet beleives it’s great for brick and mortar smaller busiensses to use the Internet to grow! And almost all the top 100 big companeis are brick n’ click that sell the most on the Internet. We’re not against the big busiensses, but take exception with the fact that the MFA is being promoted by them when it helps them grow but hurts the smaller busiensses.

    Also, the anti-MFA are not “conservatives” and the Pro-MFA “liberals”, even if President Obama has stated he’s ready to ink it if the House passes the bill. Remember, that the MFA began with Wal-Mart went to Congressman Womack (who is a true Arkansas Republican conservative). These big box businesses lobbied with over $50 million for the Senate to pass the act, and those that voted for the act receive money, both democrates and republicans. As those who voted for the vote bragged, the vote was “bipartisan”. Similarly, those who voted against it didnt’ take the money and they were bipartisan too.

    Regarding eMainStreet.org, we probably non-partisan. But we have no money by comparision. Those of us who flew into D.C. did so by paying our own way. And we never laid any money before the congressmen with whom we spoke – only our hard work researching the facts, that we presented, and our individual business stories, all remarkably different from each other, that specifically illustrated how harmful the act to would to smaller busienss America.

    So the real polarity is businesses without miuch, if any lobbying money versus businesses with a great deal of lobbying money.

    We’re also concerned that the Free Internet has helped the top 100 grown, and we don’t want to see that eliminated for future generations. So any solution in raising use tax must be a fair one. Maybe trying to solve the use tax collection failure is not as optimal as some other solution being exercised right now by a state or that otherwise might be created.

    Given how pervasively the MFA would hurt smaller busiensses, we believe the right thing is to defeat it, and we’re glad to work with congress to develop a more impartial solution.

  • Susan Lindsey

    I noticed that this article seemed to dichotimize into “conservative” (eg. eMainStreet) and “Liberal” (e.g., pro-MFA with President Obama ready to ink the act). Here’s what I wrote:

    Also, I believe the proMFA camp likes to polarize matters in a false, self-serving manner. When it comes to use tax violations, it’s not mainstreet versus online. Even many smaller businesses are brick n’ click. eMainStreet beleives it’s great for brick and mortar smaller busiensses to use the Internet to grow! And almost all the top 100 big companeis are brick n’ click that sell the most on the Internet. We’re not against the big busiensses, but take exception with the fact that the MFA is being promoted by them when it helps them grow but hurts the smaller busiensses.

    Also, the anti-MFA are not just “conservatives” and the Pro-MFA just “liberals”, even if President Obama has stated he’s ready to ink it if the House passes the bill. Remember, that the MFA began with Wal-Mart went to Congressman Womack (who is a true Arkansas Republican conservative). These big box businesses lobbied with over $50 million for the Senate to pass the act, and those that voted for the act received money, both democrates and republicans. As those who voted for the vote bragged, the vote was “bipartisan”. Similarly, those who voted against it didnt’ take the money and they were bipartisan too.

    Regarding eMainStreet.org, we’re probably non-partisan, even though we mostly believe it makes sense for state and national government to legislate in a way that is fiscally responsible. But we have no money by comparision to the big box companies. Those of us who flew into D.C. did so by paying our own way. And we never laid any money before the congressmen with whom we spoke – only our hard work researching the facts, that we presented, and our individual business stories, all remarkably different from each other, that specifically illustrated how harmful the act to would to smaller busienss America.

    In fact, I believe that the real polarity is smaller businesses without miuch, if any lobbying money versus big businesses with a great deal of lobbying money.

    We’re also concerned that the Free Internet has helped the top 100 grow, and we don’t want to see similar opportunity eliminated for future generations. So any solution in raising use tax must be a fair one. Maybe trying to solve the use tax collection failure is not as optimal as some other solution being exercised right now by a state or that otherwise might be created

  • CJ

    The Marketplace Fairness Act is grossly mislabeled. It will not make it more “fair” for big
    retailers. It will not make it more “fair”
    for customers. Customers do not make purchase
    decisions based on sales tax. The
    Marketplace Fairness Act is a mechanism created by big business to reduce
    competition online by start-ups. This
    bill creates an additional hurdle a new or existing enterprise would have to overcome
    in order to do business online. It will
    not significantly increase tax payments to the states as 83% of online purchases
    are already from big business that currently pay these taxes. It will hurt small businesses by requiring
    them to outsource tax collection (software) while increasing their
    liability. This will simply reduce their
    profits and push some of them out of business while minimizing future
    start-ups.

    There is also a second part of this bill that is rarely
    discussed. How many, particularly elderly,
    customers shop from a catalog that’s mailed to their home and then mail back an
    order form with their check? I’m talking
    about customers who do not own computers and do not or will not call in their
    order? What will they do? There are 9600 tax jurisdictions each with
    specialized tax codes. Does Washington expect
    them to figure out their tax liability prior to sending in their check? This act penalizes millions of Americans. Where is the fairness for them? It’s sad. Millions of Americans do not even know how
    this bill will affect them.

    If this a bill like this is going to be implemented, we need
    simplified tax codes that are standardized across states.

    More information: http://www.forbes.com/sites/kateharrison/2013/06/22/the-marketplace-fairness-act-should-you-join-the-fight-to-defeat-it/

  • James Costanzo

    Retail

  • James Costanzo

    Retail customers lose

    Small retailers lose