Although the Senate passed the Marketplace Fairness Act (MFA) with bipartisan support, the bill is still under review by the House Judiciary Committee. Its expected that critics there will drive further research into the true impact of the bill on online retailers and passage will be more difficult than it was in the Senate.
Marketplace Fairness Act Specifics
The MFA dictates that online and catalog retailers must collect state tax on remote (online, catalog, phone, etc.) sales regardless of their location. Passage would overturn a decision made by the Supreme Court in 1992 stating that retailers are only required to collect taxes for states in which they have a physical presence.
The bill includes several safeguards designed to simplify implementation and protect small businesses including:
- A $1M remote revenue threshold exempts smaller companies from the collection requirement.
- States must abide by a standardized and simplified tax code (Streamlined Sales and Use Tax Agreement, or SSUTA) or provide free software to all online retailers. Free software is also available to collect tax for SSUTA-certified states.
- The bill limits audits to not more than one per state per year.
Opponents, however, feel that this is not enough and are vehemently opposing this legislation.
One group in particular, The eMainStreet Alliance, is a grassroots group of more than 300 online retailers who have come together to help lawmakers understand the destructiveness of the MFA. This group cites two main issues with the bill that could cripple small businesses.
- Cost of compliance eMainStreet argues that the cost of calculating and collecting tax for up to 9,600 venues would exceed many business annual profits. Even with the free software, the Alliance estimates the cost of compliance will range from $20,000 to $300,000 depending on the number of states and complexity of the industry. For illustration, they cite that the largest online retailer in the world, Amazon.com, currently earns a 1% profit margin. Applying that margin to a $1M online business yields a $10,000 profit, meaning a $20,000 compliance cost could put them out of business.
- Audits Upon passage of the bill, eMainStreet warns that audits will soon follow. Even with the limitations that the bill provides, small businesses will still be subject to audits from up to 46 states where they have no physical presence, political representation or right to vote. Furthermore, the Alliance warns that most states can hold a companys responsible person(s) personally liable for unpaid sales tax liabilities, which puts the personal property of the small business owner at risk.
The Alliance claims that big box retailers such as Walmart, Best Buy, Home Depot account for 83% of all online commerce so the risk of putting tradition brick-and-mortar stores out of business is an empty threat. The real threat is placing such a burden on small businesses that they stunt their own growth to remain under the $1M threshold.
Other Opponents to the Marketplace Fairness Act
There are many other organizations that join eMainStreet in opposition to MFA such as:
- Political groups Americans for Prosperity, Heritage Foundation and R Street
- Industry associations American Catalog Mailers Association, Computer & Communications Industry Association (see letter), and Direct Marketing Association (see article)
- Online retailers such as eBay and Online Stores, Inc.
- Retail groups such as We R Here Coalition
There are a number of organizations and resources out there that are providing Marketplace Fairness Act opposition letters for those wanting to write their Congressperson or Senators. Some resources include:
For a full list of registered opponents and supporters, details of the bill, and news coverage, please visit www.marketplacefairness.org.