Does Internet Sales Tax Affect You
The new Marketplace Fairness Act legislation, dubbed “Internet Sales Tax”, has got the web world abuzz. As more and more legislation is directly aimed at the internet (think SOPA or PIPA) the MFA seems likely to pass. So here are a couple of answers to the basic questions you might have about it.
1. What Would the Marketplace Fairness Act (MFA) Do?
The MFA would require online retailers to collect sales tax from customers in states where the retailer has no substantial physical presence and remit them to each customer’s state.
There are two important caveats: First, there’s a small business exemption for online sellers making less than $1 million annually. Second, it only applies to purchases made by customers in states where sales tax is already collected.
2. Why Does the Marketplace Fairness Act Exist?
Thanks to a 1992 Supreme Court ruling — Quill Corp. v. North Dakota — Internet retailers do not collect sales tax from customers where the retailer has no major physical operation. Instead, Internet retailers’ customers in states with sales tax are supposed to report their online purchases in their tax filings. Few do, causing states to lose an estimated $11 billion every year.
Several states have been experimenting with laws to close that loophole for years. That has created a confusing patchwork of laws with questionable constitutionality. As a federal law, the MFA would trump the various state laws and settle the issue once and for all, provided it wasn’t challenged in court.
The MFA’s supporters also argue it would help brick-and-mortar shops compete with online retailers — a struggle that has become increasingly difficult with the rise of “showrooming.”
“The bill was introduced basically to put all businesses on a level playing field,” said Daniel Patrick Head, Press Secretary for Sen. Michael B. Enzi (R-Wyo.), who introduced the Senate version of the MFA. “Right now, out-of-state online catalog retailers are operating and they’re selling within different states, but they’re not having to follow the same laws as other businesses and that . . .is collecting the sales tax on purchases.”