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MFA Promotes Taxation Without Representation

author photo of Jerry Donnini

“No taxation without representation” is most famous to me from the Schoolhouse rock series that taught be about every important aspect of American history. Based on the video and song, the slogan was used in the mid-1700’s by British colonists in the early pre-United States of America to voice their grievance with paying tax to a government in which they lacked a voice in the decision making process. Interestingly, in 2014, the proposed Marketplace Fairness Act (“MFA”) is attempting to do the same thing. In short if the MFA is passed, then many out of state companies will be forced to charge and collect tax and follow rules in a state in which it has no say in the tax and rule making process. Is that really what we want?

Being election week, many voters are asked to go out and voice their opinion on how to handle certain issues. In a Democratic system, it is the opportunity for each citizen to elect leaders that share views similar to their own. In a system that boasts “rule by the people,” law makers face an important conundrum in the near future. In the state and local tax (“SALT”) world one major decision in the coming years will be how to deal with the Marketplace Fairness Act. For those that are unfamiliar, the MFA would essentially require businesses that sell over a certain threshold to charge, collect, and remit tax to jurisdictions in which the business does not have a physical presence or nexus.

Many politicians and analysts view the proposed MFA in a favorable light. Proponents will point to the level playing field that will be created if passed. Despite many commentator’s views that this is a “new” tax, the MFA will impute nexus to companies with no physical presence in a state. Through that mechanism, a customer will pay the same amount for a product whether the item is purchased online (formerly without sales tax) or at a traditional store that will charge its state’s sales tax. Proponents will also talk about the administrative simplicity that exists because of software and technological advances that makes compliance “simple.” But is this what we really want?

Despite backing from the large retailers such as Walmart, Amazon, Best Buy, Bed Bath & Beyond, Barnes & Noble, Target, and Staples (who already collect virtually everywhere by the way), the MFA has some serious flaws. Further, most literature misses the biggest problem with the MFA. Under the MFA a state can go after an out-of-state company that fails to comply with its laws. A state could tax a product sold primarily by an out-of-state company. A state could create exemptions for in-state companies. And a state could force an out-of-state company to answer to its auditors, investigators, and collectors on a regular basis. All the while the company being forced to charge tax on its product and answer to an expensive audit notice or investigation does not even have a vote to shape the decision making of a state. Is that not the type of taxation without representation that divided our great country from Britain in the first place?

It will be interesting to see whether Congress elects to pass such an extreme measure to deal with a real problem in our current marketplace. If this affects your business or your clients business then I urge you to reach out and voice your dislike for this proposal. Despite what politicians and the Internet say, there are real problems and real alternatives to this issue. If you would like more information on the matter then please do not hesitate to call or email me.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder 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 .

Questions? 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

5 Responses to MFA Promotes Taxation Without Representation

  • Posted by John on March 31, 2015 8:07am:

    I agree with Jerry on this. My company does about $2MM a year but sells a modest amount in most of the states from a single office. Compliance would kill me. The large corporations are everywhere and have more tax accountants than I have total staff. Sure they are for it as it will simplify their lives and impose a burden that could kill small businesses like mine. But, Hey, that's OK, when small businesses die or get disgusted and walk away, I am sure that the large corporations will create lots of new jobs for the economy, right? I hope so. They are pushing the politicians to make these stupid laws.

  • Posted by Jack on November 20, 2014 5:27am:

    The MFA is the right way to go for the neighborhood small business. Yes make it easy to administer - is your bias because you are in a no tax state now so your clients don't bother with filings?

    • Posted by Author photo of Jerry DonniniJerry Donnini on December 8, 2014 6:17am:

      Jack
      I respectfully disagree. It makes it easier for states to administer but in my humble opinion the costs of compliance cripples small business. It can be costly not only file returns in some 10,000 jurisdictions but assume a state audits a business every 5 years. That would be 8 audits per year for a small business which would make it impossible to remain open. I believe the MFA would actually benefit me professionally, I just disagree with it on a personal level, which is why I spoke out. I appreciate your comment.

      • Posted by Ted on May 2, 2015 11:11am:

        I believe each State would have to distribute the sales tax collected to each of the jurisdictions in their respective State. and one flat rate for each State should, hopefully, be the requirement.
        And an audit by ones home State should be the only one allowable, as that will show the distribution to each "other" State. Of course this is "ass u ming" congress gets something right for a change, and doesn't have to be "bribed" as usual.

        • Posted by Author photo of Jerry DonniniJerry Donnini on May 13, 2015 4:35am:

          Ted:
          It sounds great in theory but why would the home state incur the expense of auditing for another state?

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