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Marketplace Fairness Solution? Would Europe's Destination VAT Help?

author photo of Annette Nellen

On January 1, 2015, the European Union's new scheme for imposing VAT on digital goods and e-services goes into effect. The major change is that all vendors need to use destination sourcing. Prior to that, a vendor in the EU could register in one country, such as Luxembourg with its low 15% VAT rate, and collect VAT at that rate.

To ease compliance, the EU will use the "mini one-stop shop" or MOSS. This allows a vendor to register in one country and process filings through that online system. The vendor must still collect VAT based on the destination country's rate, but instead of quarterly filing in all EU countries where it has customers, the vendor can do the quarterly filing just in the one country. That country then makes sure that the VAT gets to the appropriate country.

Is this something that might make the Marketplace Fairness Act more acceptable to vendors?  What do you think? And, what do you think will happen with this act in the 114th Congress?

For more on this topic, please see my BloombergBNA article of 11/21/14 - here.

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

6 Responses to Marketplace Fairness Solution? Would Europe's Destination VAT Help?

  • Posted by James on January 12, 2015 3:20am:

    The idea is an improvement over 2013/2014 MFA in that it would only require one return. However, it still requires vendors to know, apply, and be liable for the laws in 47 states beyond their home state.
    This reminds me of the idea of a flat 5% income tax. Seems simple, but graduate income rates are not complicated. The complication lays in what is taxable, when is it taxable, to whom is it taxable, what is exempt, when is it exempt, what is deductible, when is it deductible, and... what paperwork do I need to keep to prove all the above.
    Did you know that the EU has something similar to the Consumer Private Reporting solution implemented for VAT? It is supposedly working very well.

  • Posted by Marketplace on January 8, 2015 9:43pm:

    […] via Marketplace Fairness Solution? Would Europe’s Destination VAT Help? | Sales Use Tax. […]

    • Posted by Author photo of Annette NellenAnnette Nellen on January 12, 2015 5:35am:

      James - good points. Yes, there are fewer tax returns to complete, but you still need to collect and change it correctly in each state. If we had one rate per state, that would help, along with a common base among the states. Can you state more about the Consumer Private Reporting solution? Thanks.

  • Posted by Brian on January 6, 2015 1:47am:

    I like this idea (or some variation) for the U.S. If the states want to collect revenue that they currently don't collect because of inadequate measures (use tax collection on consumers), then they should focus on fixing the collection measure, not imposing new tax collection obligations that lack statutory authority or constitutional authority. Using the VAT example, the states could either use 'origin' sourcing or 'destination' sourcing. I like that the burden of distributing the revenue between the states would be on the states, not taxpayers. One additional note: the states could go to origin sourcing only for remote sales.

    • Posted by Author photo of Annette NellenAnnette Nellen on January 6, 2015 3:07am:

      Brian, thanks for the comment. I think the registration in one state and that state makes sure the taxes go to the right state will reduce the burden of filing in all states with a sales tax and your customers. Origin sourcing for remote sales would also simplify. I'm not convinced that the customers want their sales tax dollars going to another state though. If they have to pay it, they'd want it to go to their state. It would also make the few states without a sales tax a desired location for online vendors. Thanks.

      • Posted by Kevin on January 7, 2015 7:04am:

        Annette,
        I don't think people care much about sales & use tax. They don't often notice it on what they purchase. They could not care less where the tax that is collected would go. Most states would probably have to agree on "origin" or "destination" via something like the SST. Could be tricky if many use origin and many others use destination.

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