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Showdown in Congress: The Marketplace Fairness Act Update

author photo of Jerry Donnini

Over the past few years, small and mid-sized businesses have feared the Marketplace Fairness Act (“MFA”). Under the new Act online retailers that have sales over a certain threshold would be required to charge, collect, and remit tax in any jurisdiction to which they sell. The Act can also be viewed as a response to the Supreme Court’s challenge in 1992 for Congress to act on the issue of sales tax nexus throughout the country. The MFA passed the Senate but has been sitting in the House since May 2013.

MFA proponents of the bill believe the MFA simplifies sales tax on a national level. The proponents point to software that will enable companies to accurately report sales to the over 10,000 state and local jurisdictions. MFA supporters also believe this sales tax “simplification” will put online retailers on the same footing as brick-and-mortar retailers that have to charge, collect, and remit sales and use tax. While in theory it may sound simple and fair, backers of the MFA fail to take into account the myriad of problems that come with giving states jurisdiction over companies outside it their borders. For example, small and medium online retailers potentially face audits, collections, and criminal sales tax issues for 45 states and thousands of localities.

To the surprise of many, most large online retailers support the MFA. Companies such as Sears, Best Buy, the Gap, Barnes and Noble and yes, Amazon, actually support the MFA. For starters, large companies are looking to take advantage of the competitive advantage offered by the MFA. Being that most large online retailers already charge and collect tax in several jurisdictions, the burden of collecting in a few more does not equate to significant cost increases. However, for the small online company, the increased burden may put it out of business. In addition, Amazon may offer assistance with sales tax compliance for a fee. Therefore, Amazon’s continued support for the MFA is not all that surprising.

Also looming is the Internet Tax Freedom Act (“ITFA”). The current ITFA bans states from taxing “Internet Access.” The ITFA, enacted in 2007 is set to expire this year. In July 2014, the House passed a bill to permanently enact the ITFA, however, the Senate saw an opportunity to make a deal.

As I mentioned above, the MFA has been sitting dormant in the House since 2013. As luck would have it, the Senate has a bill sitting in the House (the MFA) and the House has a bill sitting in the Senate (the ITFA). What a perfect opportunity to tie the two together and get both of them passed as part of the same Act. Many commentators believe that is exactly what is going to happen. Time will tell but many are hopeful for both bills to get passed into law — everyone but small online retailers that is ....

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog . If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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Comments

2 Responses to Showdown in Congress: The Marketplace Fairness Act Update

  • Posted by celia on October 24, 2014 8:21am:

    Would anyone know what each states policy is on the number of days in their state to trigger nexus?

    • Posted by Author photo of Jerry DonniniJerry Donnini on December 8, 2014 6:13am:

      Celia:
      Sorry for the delayed response. Each state is different. Many states have more than 2 visits trigger nexus. Other states have more latitude. It is regular and continuous you may have a problem.

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