On May 6th, 2013, the U.S. Senate passed the Marketplace Fairness Act of 2013, by a vote of 69-27. This bill would grant states the authority to require that out of state remote sellers collect sales tax on sales made to customers in the state. The bill now moves to the U.S. House of Representative for their consideration.
The bill has received much support, from large store retailers such as Wal-Mart and Target, and even from online retailers Amazon.com and Buy.com, as well as from many state retail associations.
eBay has said that it is not opposed to this type of sales tax collection, but believes that the “small seller exception” included in the bill is too low, at $1 million in annual gross remote sales.
In the 1992 US Supreme Court decision for Quill Corp v. North Dakota, it was ruled that a state cannot require a seller to collect the state’s tax unless the seller has a physical presence in the state. But, the court stated that “the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”
Since that case, the world of online retail sales has grown exponentially, with states estimating that they lost out on $23 billion in sales tax revenue in 2012. In addition, most experts feel that technology has removed the barriers that would prevent efficient compliance with multiple state sales tax laws.
Supporters of the bill believe it will level the playing field between those with and without a physical presence in a state. Many store retailers have found that customers use their stores to view and test items, but eventually order online from an out of state vendor to save the state sales tax charges.
Opponents of the bill believe it will create a compliance burden for smaller retailers, and some believe it is an unreasonable extension of state legislative power.
If the bill becomes law, states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA) would be granted this authority beginning 180 days after enactment.
A state that is not a member of SSUTA would be required to enact legislation implementing the minimum simplification requirements described in the bill, or to implement the provisions of SSUTA. After enacting this legislation, collection authority would begin six months later.
A state would not be allowed to require tax collection by a seller that had gross annual receipts in total remote sales in the preceding year of $1 million or less. Sales by related parties would be aggregated for the purpose of determining if the small seller exception is met. Remote sales would only include sales made by retailers to states in which they do not already have a requirement to collect and remit sales and use tax.
One note for many of our clients, Ohio is an associate member of SSUTA, and Florida is not a member of SSUTA.