Tag Archives: marketplace fairness act

Debate on Internet Sales Tax Collection Reinvigorated

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Will Congress finally pass legislation allowing states to require online retailers to collect sales tax, or will the Marketplace Fairness Act suffer the same fate as in did in 2011 and 2013?  In a bipartisan effort, the Act was reintroduced on March 10, 2015 by Senators Mike Enzi (R-WY), Lamar Alexander (R-TN),  Dick Durbin (D-IL) and Heidi Heitkamp (D-ND), setting in motion the next chapter of the hotly-debated Internet sales tax issue.

Supporters of the bill argue that requiring online retailers to collect sales tax will level the playing field for local retailers that are at a competitive disadvantage due to their obligation to collect sales tax that online retailers currently do not. Opponents of the Marketplace Fairness Act claim that the bill is a new tax on consumers and will result in an undue compliance burden on smaller Internet retailers trying to collect and remit the taxes to the myriad state and local jurisdictions that impose a sales tax.

The bill does attempt to address the compliance burden through a small seller exception, and characterizing the proposal as a new tax is technically incorrect.  Consumers are already required to pay a use tax on purchases that they make from out-of-state retailers, but the overwhelming majority do not because they are unaware of the requirement or realize that the state is never going to audit them for a few dollars in tax on a new pair of shoes they bought on the Internet.  That is why states focus their audit efforts on purchases made by businesses, many of which are also unaware of their use tax obligations.

Still, the question remains whether the most recent attempt to enact the Marketplace Fairness Act will have a different result.  Is there a different dynamic this time around that will convince Congress that they are best suited to address this complex issue?  On March 3, 2015, Justice Kennedy may have given Congress the added incentive to construct a law that strikes the proper balance between increasing the sales tax collection requirements of online retailers and protecting small retailers from a daunting compliance burden.  In his concurring opinion in Direct Marketing Association v. Brohl, No. 13-1032, a case addressing a procedural issue surrounding a Colorado sales tax law, Justice Kennedy went out of his way to invite a new challenge to the 1992 case (Quill Corporation v. North Dakota) that allows online retailers to avoid collecting the sales taxes of states where they don’t have a physical presence.

The U.S. Supreme Court has steered clear of directly addressing the physical presence standard for years.  Congress could view Justice Kennedy’s invitation as motivation to craft a uniform federal law that at least provides a framework under which states are authorized to require remote sellers to collect sales tax or risk states coming up with their own rules in response to Quill being overturned.  The fate of the Marketplace Fairness Act is still unclear, but the invitation issued by Justice Kennedy may indicate that, one way or another, we will all be paying sales tax on our online purchases at some point in the near future.

If your company has question about its sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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Goodlatte Proposes “Origin” Approach for Internet Sales Tax

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On January 13, 2015, House Judiciary Chair Bob Goodlatte (R-VA) released a discussion draft of his long-awaited plan to simplify the collection of state sales tax on internet sales. The Online Sales Simplification Act of 2015 adopts an “origin” based approach to collecting sales tax, as opposed to the “destination” approach included in the Marketplace Fairness Act of 2013.

As the law currently stands, online retailers are only required to collect sales tax in jurisdictions in which they have a physical presence. The Marketplace Fairness Act of 2013, which passed the Senate in May of 2013 and has since stalled in the House, attempts to circumvent the physical presence requirement by allowing states that meet certain simplification standards to require remote sellers to collect the sales tax of the state where the buyer is located (i.e., destination-based sourcing). However, Rep. Goodlatte feels that lawmakers should not allow a state to reach out and regulate businesses outside of its jurisdiction.

Under Goodlatte’s approach, sales tax would be collected based on the laws and rates of the seller’s location, and the destination state would generally be precluded from assessing any additional tax. States will only have the authority to require a seller to collect sales tax on a remote sale if the state is a participant in a tax distribution agreement.  The sales taxes would be remitted by the sellers to the taxing authority in the origin state. The origin state would then submit the taxes to a multistate sales tax commission, which would further distribute the taxes to destination states. If the destination state does not participate in the distribution agreement, the origin state keeps the proceeds.

An origin-based sourcing rule is a fresh approach to the ongoing debate about the collection of sales tax on online sales, but it is at odds with the destination rule which typically governs interstate sales. Further, there may be constitutional issues with the proposal. The National Conference of State Legislatures has released a letter calling the proposal an unconstitutional attack on state’s rights. Potential constitutional issued include customers in the same state possibly paying tax at different rates and customers in no-sales-tax states having to pay tax.

While the Online Sales Simplification Act is unlikely to gain significant traction, as even the House Republicans are divided over the draft, it should at least serve to foment discussions on creative solutions for creating a uniform tax collection framework for online retailers.

If your company has questions about its sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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Calling All Maryland Amazon Shoppers

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If you plan on making a purchase from Amazon.com in the near future and you are located in Maryland, you might want to consider executing that transaction today if you were hoping to avoid sales tax.  Starting tomorrow, October 1, 2014, Amazon.com will begin collecting the state’s 6% sales tax on purchases made on its website by Maryland customers.

Amazon.com’s collection of Maryland’s sales tax coincides with the opening of two in-state fulfillment facilities being constructed on the south side of Baltimore.  Generally, a retailer only has to collect a state’s sales tax if it has a physical presence in the state where the product is delivered.  For a number of years, paying no sales tax was one of the major advantages from buying products from Amazon.com.  Now Amazon.com collects sales tax in over 20 states.

The Maryland Board of Revenue has estimated that Amazon.com’s collection of sales tax will bring in approximately $50 million in new revenue annually.  October 1st also marks when Amazon.com will also begin collecting sales tax in Minnesota.

If you have any questions about sales tax obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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Maryland’s Up Next for Amazon.com Sales Tax Collection

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Marylanders should make their online purchases now, as Amazon.com will soon begin collecting sales tax on internet sales made to Maryland customers. For the last few years, the number of states where the retail giant collects sales tax has skyrocketed, mainly due to the company’s expansion of fulfillment centers across the country. Maryland will join 21 other states where Amazon collects tax, including California, Florida, Georgia, New Jersey, New York, Texas, and Virginia.

The exact date when Amazon will begin collecting sales tax on Maryland sales is not yet known, as it will coincide with the opening of two in-state facilities being constructed on the south side of Baltimore. Based on U.S. Supreme Court case from 1992, a retailer is required to collect a state’s sales tax if it has a physical presence in the state.

This could change if Congress passes legislation that is currently being considered by the House. The Marketplace Fairness Act, which passed the Senate last year, would eliminate the physical presence requirement for states that comply with certain simplification requirements pertaining to the collection and remittance of the tax. This would result in tax-free online shopping being a thing of the past for customers in most states. Unfortunately for Marylanders, their tax-free purchases from Amazon will end, regardless of what action Congress takes, so act now if you want to save a few bucks on that purchase you’ve been putting off.

If your company has question about its sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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Internet Sales Tax Back in the Spotlight

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Soon we may know more about whether states can impose sales tax on Internet sales, as the House of Representatives is beginning to focus on the Marketplace Fairness Act of 2013 that passed the Senate in May. On September 18, 2013, Rep. Bob Goodlatte (R-VA), the chairman of the House Judiciary Committee, released a set of principlesthat he believes any Internet sales tax bill should meet. Goodlattestated that the “the aim of the principles is to provide a starting point for discussion in the House of Representatives.” The principles, which include putting online retailers on “equal footing” as brick and mortar companies (i.e., “tech neutrality”) as well as compliance simplicity, received praise from the National Governors Associationand the National Retail Federation.

Currently, retailers must have a physical presence in a state to be required to collect sales tax from their customers. That has allowed online retailers to offer many customers tax-free shopping, as most online shoppers don’t report the use tax liability imposed by most states.   In recent years, states have been creative in passing legislation that allows for the taxation of some Internet sales and at the same time attempts to comply with the physical presence standard. A number of states (e.g., California) require online retailers to collect sales tax if the retailer has an in-state affiliate that has a link on its website to the retailer’s website. Another strategy used by states is to require out-of-state retailers to collect the state’s sales tax if an affiliate of the retailer maintains an in-state distribution center, warehouse, fulfillment center, or similar location that facilitates the retailer’s sales. This approach was adopted by Virginia through negotiations with Amazon, with its law going into effect on September 1, 2013. Still, these efforts can only go so far, as they must stay within the confines of the physical presence requirement. The Marketplace Fairness Act would eliminate the physical presence requirement for states that comply with certain simplicity requirements.

As the bill moves forward in the House, one of the hot button issues is sure to be the “small seller exception,” which, in the current version of the bill, exempts online retailers from the sales tax collection requirement if a retailer’s total annual sales are $1 million or less. Goodlatte clearly wants to address this issue, as his principle on simplifying compliance optimistically calls for a law that is “so simple and compliance [that is] so inexpensive and reliable as to render a small business exemption unnecessary.”

If your company has question about its sales tax collection obligations please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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