Senate Votes in Favor of Marketplace Fairness Act of 2013

State and Local Tax

By Jennifer Koehler

On May 6, 2013, the U.S. Senate voted 69 to 27 to pass Senate Bill 743, known as the Marketplace Fairness Act of 2013 (Act). The bill’s stated purpose is “to restore States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.”

Many are referring to the Act as the internet sales tax bill when in reality the bill gives the states the authority to enact legislation that would require “remote sellers,” including internet sellers, as well as those that sell through catalogs, radio and TV ads, and telephone orders to collect the state’s sales tax. States would be empowered to enforce a sales tax collection responsibility on any retailer with remote sales in excess of $1 million. This Act is, in effect, reversing the 1992 U.S. Supreme Court decision (Quill) in which a physical presence was required for a state to enforce collection of its sales tax.

Supporters of the Act include Wal-Mart, Best Buy Co, Inc. and Amazon.com Inc. and argue:

  • That the Act makes it relatively easy for out-of-state retailers to comply since states must provide free software to help calculate sales taxes and must establish a single entity to receive tax returns/payments for all jurisdictions within the state.
  • That the current tax disparity is turning some traditional stores into showrooms where shoppers pick out items they like and then buy them online to avoid sales tax.
  • The Act is not a tax increase. Customers who make purchases from out-of-state retailers currently are required to pay use taxes on those purchases; although, few do. The Act moves the tax burden by requiring the out-of-state retailer to collect the tax due on the transaction.

Opponents of the Act include eBay, Overstock.com Inc. and numerous small business owners and argue:

  • That the Act burdens small businesses with paperwork and audits, creates a tax advantage for foreign sellers and potentially allows state-level transaction taxes.
  • The measure would require businesses to collect taxes for states even though the businesses would not be able to influence those states’ laws.
  • That the Act gives states too much power to reach across state lines to enforce state tax laws through audits, imposition of liens on property and the ability to sue in state court.
  • The small business exemption should be changed from the $1 million threshold to a threshold of $10 million or less than 50 employees.

The H.R.684 will now be considered in the U.S. House of Representatives, where it is anticipated to meet more opposition than it did in the Senate.

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