December 02, 2013
Marcum SALT Expert Predicts More States Will Force Online Retailers to Collect and Remit Sales Tax
New York City, NY —Cyber Monday of 2013 may be remembered as the day that Internet retailing lost some of its competitive edge, according to Daniel Effron, National Leader of the State and Local Tax Practice of Marcum LLP, a top accounting and advisory firm. Mr. Effron predicts that the U.S. Supreme Court’s decision today to decline to hear a challenge brought by two of the Internet’s biggest retailers against a law requiring the collection of sales tax on Internet transactions in New York State may be the trigger for many or all other states to adopt similar laws.
“Now that the Supreme Court has decided not to hear the Amazon and Overstock.com cases and to let the New York click-through nexus provisions stand, I can see many more states jumping on the bandwagon to enact similar rules,” Mr. Effron said.Under click-through nexus provisions, online retailers who drive consumer traffic to their websites through links placed on other websites are considered to have the same presence (“nexus”) for sales tax purposes as do traditional, brick-and-mortar retailers with employees, inventory, stores, warehouses and/or fulfillment centers in the state.
“While states and local jurisdictions will clearly benefit from significantly increased tax revenue, Internet shoppers will find their bargain purchases much reduced in value after the addition of the sales tax bite, and online businesses will find their compliance costs increased,” Mr. Effron said. “What is still unclear, though, is what impact the passage of sales tax laws will have on the overall tremendous growth of online commerce, if any. One thing for sure is that brick-and-mortar retail businesses will be very happy to see the playing field leveled in terms of sales tax.”
“An interesting follow-on to this is the Marketplace Fairness Act, which is still stuck in Congress,” Mr. Effron said.“If the Act passes, it would essentially make the click-through nexus rules such as exist in New York State a moot point, since all companies that sell products via the Internet will have to collect and remit sales taxes, regardless of whether a particular state enacts click-through provisions.”
The Marketplace Fairness Act of 2013 was introduced in both the House and Senate in February. The proposed legislation permits states to enforce the collection of sales and use taxes from Internet retailers, placing them on a par with brick-and-mortar businesses. Both versions of the bill provide an important "Small Seller Exception" for businesses with less than $1 million dollars in annual domestic remote sales.
The proposed 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. Passage of the Marketplace Fairness Act would eliminate the need for a physical presence in a state before the state can compel a vendor to collect and remit sales taxes.
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Marcum LLP is one of the largest independent public accounting and advisory services firms in the nation, with offices in major business markets throughout the U.S., Grand Cayman and China. Headquartered in New York City, Marcum provides a full spectrum of traditional tax, accounting and assurance services; advisory, valuation and litigation support; and an extensive range of specialty and niche industry practices. The Firm serves both privately held and publicly traded companies, as well as high net worth individuals, private equity funds and hedge funds, with a focus on middle-market companies and closely held family businesses. Marcum is a member of the Marcum Group, an organization providing a comprehensive array of professional services.