Last week the Marketplace Fairness Act of 2013 (the "Act") was introduced in both the House and Senate by sponsors of both the Republican and Democratic parties. Indeed, a remarkable turn of events, given the ongoing conflicts between the House and Senate, and their Republican and Democratic members. But finally lawmakers appear to be in agreement - the time has come for the States to be permitted to collect sales and use taxes from remote sellers.
The proposed legislation permits States to enforce collection of sales and use taxes from internet retailers, placing them on a par with brick and mortar businesses. The bills introduced in the House and Senate are substantially similar in all material respects. Each provides an important exception, the "Small Seller Exception", for businesses with less than $1 million dollars in annual domestic remote sales.
This Act permits States to require qualifying Sellers to collect and remit sales and use taxes on remote sales, but the States must implement certain simplification requirements. Some of these requirements include:
- Specific identification of the applicable taxes,
- Establishment of a single entity within the State responsible for sales and use tax administration, returns, audits and overall compliance,
- Provision of a uniform sales and use tax base,
- Compliance with certain definitions, provision of information, and
- Availability and use of compliance software provided free of charge.
Since 1992 when the Quill case was decided by the Supreme Court, States have been prohibited from collecting sales taxes on purchases made by in-state customers from out-of-state sellers who lack sufficient physical presence. Quill has, however, been watered down by subsequent cases and creative legislation, as well as agreements between states and remote sellers, such as Amazon, facilitating the collection of local sales and use taxes in limited circumstances.
Whenever Republicans and Democrats, in both the House and Senate, act together to introduce legislation, passage is assured. We must therefore assume, that the age of sales tax free internet sales by remote sellers is rapidly coming to a close.
While States and local jurisdictions will clearly benefit from significantly increased tax revenue, internet purchasers will find their bargain purchases much reduced in value, and businesses will find their compliance costs increased.
Marcum will continue to keep you apprised of developments in this area. If you have any question on the impact of this legislation on your business, or on any other sales and use tax matters, please contact your dedicated Marcum State and Local Tax Professional.