There have been many articles written these past months regarding the proposed Marketplace Fairness Act of 2013 (MFA) and most include a reference to the “free” software that could mitigate the cost of compliance for remote sellers.
However, should the MFA be enacted, it’s extremely important for remote sellers to realize that receiving “free” software does not mean this it will be a “cost-free” solution. That’s right! Free does not mean cost-free!
In order to understand the true costs of the MFA software options, a remote seller must consider the effort and cost associated with the complete process – from software selection and integration - through to mapping and implementation.
Software Selection and Integration:
Consider how on-line transactions are processed. In the old days, a company would receive an on-line order and complete the transaction in multiple (often manual) stages. These days, e-commerce transactions can be processed with a single click, using electronic shopping cart solutions which plug into a company’s accounting program (for example QuickBooks). Transactions are processed and recorded and the two applications are able to work as one through what is called a system integration.
If an integration has been developed to connect a particular shopping cart to a particular accounting software package – set-up can be relatively quick and easy. However, realize that there are hundreds of accounting software packages -especially once you factor in legacy and custom solutions. Given the many variables, it is simply not possible for each shopping cart to offer an integration for each and every accounting package. Similarly, it is unlikely that MFA’s free tax software options will be able to offer an integration for each and every shopping cart solution.
In such situations (where a packaged integration is not available), one can be developed – and that process can be eased somewhat if an Application Program Interface (API) or Software Development Kit (SDK) is offered by the tax software provider. But it is important to realize that even if an API (or SDK) is available, someone still has to develop (and possibly customize) the integration which will allow those two products to function as one.
Even if an integration to connect to a seller’s shopping cart solution is available or can be custom developed, this is still not a completely cost-free route. Remote sellers also need to consider mapping, or the process of aligning their products with a matching or a “most likely” product description in the shopping cart solution, as well as the tax software. If mapped correctly, the tax software will be able to recognize the product sold and determine if the product is taxable and if so – what tax rate should be charged. If mapped incorrectly, transactions may not be properly taxed, which can increase risk of audits and/or penalties.
Given the complexity of the mapping process and the associated risks, some remote sellers may need to consider outside consultants to assist with the mapping process. The current MFA proposal does not provide resources to help with mapping their products, or with protection if the remote seller or its consultants make mapping mistakes.
Project Implementation Timeline – or Deadline?
Even for remote sellers that do not encounter substantial integration or mapping issues there is another challenge to consider. The current MFA bill has a 180-day timeline after which all ecommerce businesses (thousands, if not tens of thousands of companies) must collect sales tax. For some businesses, it may be a challenge to simply select and integrate the new software in 180 days – let alone complete mapping and tax filing setup (to test connection, calculation, and taxability results). Given the limited number of free sales tax software providers, it’s doubtful that they will have the capacity to set up every business properly and test for errors during that time frame. Remote sellers may be subject to penalties (and have no recourse) if they aren’t collecting sales tax within that 180 day period.
As companies consider the MFA compliance process, they need to factor in the effort and expense associated with software evaluation, as well as integration, mapping and implementation activities – or alternately outsource the entire process to a turn-key consultant. Either approach will involve an investment in both time and money. The MFA proposal, as currently written, does not cover these costs – let alone potential penalties.
This post isn’t intended to be a commentary about the MFA – nor a criticism of any of the offered software solutions. It’s simply an effort to educate small business owners regarding the true costs of a sales tax software implementation. Always remember - just because it says it’s free doesn’t mean it will be cost-free.