Last week, we posted an introduction to the Marketplace Fairness Act for Online Retailers. On Monday, the Senate voted 69 to 27 to pass the bill that requires retailers with revenues of $1M or more to collect state sales tax on all online purchases.
The bill got bipartisan support in the Senate with many legislators viewing the bill, not as a tax increase, but as a method to enforce a tax law that is already in place. Technically, buyers are supposed to pay taxes on Internet purchases when they file their state tax returns but very few actually do.
The House, however, vows to take a closer look at the ramifications of the bill. House Speaker John Boehner plans to refer it to the House Judiciary Committee for consideration. Chairman of the House Judiciary Committee Bob Goodlatte (R-VA) stated that he thinks the Marketplace Fairness Act is still not simple enough for businesses and that he is concerned about opening the door to state action against out-of-state companies.
A major concern of small businesses and other opponents (such as eBay) is the cost compliance. Bruce Phillips, a CPA who has studied the potential effect on small businesses, estimates that accounting for the tax, reporting it and then remitting it could cost a small online business anywhere from $250 to $500 each month. Furthermore, opponents contend that the burden of tax audits could cripple a small business. Some worry that small businesses will restrict their own growth to stay under the $1M revenue threshold.
Supporters argue that provisions have been put into place by the Act that require states to simplify their state tax codes before they can collect any taxes from online purchases, and therefore claim the impact to online retailers would be minimal.
Weve discussed the issue at length here at nChannel. 24 states have simplified their tax codes by adopting the Streamlined Sale and Use Tax Agreement (SSUTA) and there are six certified solutions providers that can manage the tax table and filing for online businesses which are subsidized by the 24 states. While the measure brings in revenue for states and the certified solution providers, all the retailer gets from the process is a headache. The retailer will have to implement a new solution to collect tax information for the 24 SSUTA states, and likely several more to support the other 26 states, many of whom may choose to provide their own free software solution. This means additional cost and human capital to implement, manage and maintain this new technology.
The bill could very well stall in the House and if by chance it doesnt, the Supreme Court could strike it down. The Supreme Court has a history of blocking these tax bills for online retailers, stating undue burden on behalf on the retailers.
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Wed like to know what you think about the Marketplace Fairness Act. How do you think it will affect your business?