5 Misconceptions About the Marketplace Fairness Act

Jun 18, 2013 11:05 AM  By

While many businesses small and large are talking about and worrying about the Marketplace Fairness Act (MFA), what do you really know about it?   According to recent blog post in the Huffington Post, here are five misconceptions small businesses need to know about MFA.

Small businesses don’t need to worry about the bill – Businesses with less than $1 million in total gross remote sales in the preceding calendar year are not impacted by MFA.  According to the blog post, whether you fall with the small seller exception or not, your company would still need to collect sales tax where you collect now.

The bill only applies to online retailers – The bill will apply to all “remote sellers.”  They are defined in the bill as an entity (individual, corporation, LLC.) that sells from one state into another and that does not currently collect sales tax.  The sales can be done on a website, phone or catalog.

If the bill becomes law, companies will have to collect sales tax wherever they are considered a remote seller immediately – If this bill becomes law, some states will have to implement significant tax code simplifications in order to enforce it and even then it would not be allowed to implement the law earlier than 180 days following enactment.   According to the blog post, roughly half of the states with sales tax have already simplified their sales tax codes to the level required by MFA.  The remaining states would need to pass laws to affect similar changes.  Some examples would be centralized sales tax administration and uniform rates, rules and boundaries.

If MFA passes, companies would have to worry about state-level statutes since those will all change anyway  -  If MFA passes and you are a company under the smaller seller exemption,  none of your existing collection obligations go away.  This is assuming companies are already calculates, collecting and remitting sales tax correctly in every state, and many don’t.  Passage of the legislation will add new compliance requirements to many companies, according to the blog post.   Many states have already enacted laws that require certain out-of-state businesses to collect sales tax.  These laws, also known as “Amazon laws” will require more out-of-state businesses to collect sales tax, even if they lack a significant physical presence in that state.  If this passes, businesses would be eligible for the smaller seller exemption under MFA, and companies would have to comply with Amazon laws in states like Texas and California.

There is nothing businesses can do until the bill becomes law – According to the blog post, with over 11,000 taxing jurisdictions throughout the U.S. and nearly 1,000 rate, boundary, and rule changes in January of 2013 alone, getting sales tax calculations right would be nearly impossible without some help. Companies have already begun to outsource core functions ranging from accounting to payroll and legal.

  • AmeriMark

    Another Question to ask is before we rush to pass the MFA is….What about the customers who still order from catalogs through the mail?

    The MFA incorrectly assumes every consumer places their orders from
    companies like AmeriMark on the phone or internet and ignores the millions of consumers who continue to order from catalogs with paper order forms and checks. Our company alone received 3 million mailed in orders from customers in 2012.

    Those customers will bear the burden of computing the taxes due, which have county and city exceptions, tax holidays, and countless product exemptions. I’ve experimented with ways to summarize all the possibilities nationwide for our mail-order customers. I’m not finished, but my best solution so far is a draft 40-page insert of tax rates and exceptions.

    These customers, many of whom are older, will become too frustrated by the complex, inconsistent and tangled logic of state taxes to calculate the correct tax on their next mail-order and will simply stop ordering through the mail.

    Without common rates and other simplifications, the Marketplace Fairness Act will confuse and disenfranchise millions of consumers, in addition to increasing our costs of doing business.

    The Supreme Court, in its 1992 Quill decision, reaffirmed its long standing position that the Commerce Clause bars states from imposing their complex, inconsistent and excessively burdensome sales and use tax system on interstate commerce. The sales and use tax system is more complicated, inconsistent and burdensome today than it was in 1992. Congress must insist on simplification and reform of this ridiculously complex system as a condition to any legislation requiring collection of taxes by remote sellers.

  • Steve

    Amazon loses.

    Amazon wins.

    Accountants and lawyers win, too.

  • BAndersen6

    Interesting thoughts on the Marketplace Fairness Act,I read an interesting piece on the this very topic with great information and strategies for retailers The Marketplace Fairness Act: Five proactive strategies remote sellers should consider now and another take on the #MFA thehill.com/blogs/congress-blog/technology/296389-the-marketplace-fairness-act-is-nothing-more-than-a-convenience-tax