As the Marketplace Fairness Act of 2013 (MFA) picks up momentum in
Congress, it’s no surprise that businesses across the country are trying to figure out what it means to them.
At Avalara, we’re here to help, and hope this summary will help make sense of these developments.
If passed, this legislation would grant states the authority to require certain non-exempt remote sellers to collect sales tax, if states adopt specific measures to simplify sales and use tax administration.
If passed, the MFA would also broaden states’ authority to require remote sellers to collect sales tax regardless of whether that business has a physical presence within those states.
The Marketplace Fairness Act of 2013 would not override current state and local statutes surrounding product and service taxability, tax holidays, exemptions, or related rates, boundaries and rules. Existing nexus laws would not change due to this legislation.
The stated purpose of the Marketplace Fairness Act of 2013 is "To restore the States’ sovereign rights to enforce State and local sales and use tax laws…”
The bill, as currently written, would authorize states to require remote sellers to collect and remit sales tax in accordance with state and local laws, as long as those states are are in full compliance with the Streamlined Sales & Use Tax Agreement, or a member of the Streamlined Sales Tax (SST) organization, or implement a minimum set of simplification measures.
|What is the bottom line for businesses?|
- If passed, Marketplace Fairness would add complexity to an already burdensome business process.
- Remote sellers would have the added burden of meeting sales and use tax collection and remittance requirements in each state into which they sell, and in which they do not currently have nexus.
Streamlined Sales Tax Member States
According to the legislation, "Each member state under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception”… to collect and remit sales and use taxes with respect to remote sales sourced to that Member State…” There are currently 22 full member states that comply with the following:
- State level administration of sales and use tax collections.
- Uniformity in the state and local tax bases.
- Uniformity of major tax base definitions.
- Central, electronic registration system for all member states.
- Simplification of state and local tax rates
- Uniform sourcing rules for all taxable transactions.
- Simplified administration of exemptions.
- Simplified tax returns.
- Simplification of tax remittances.
- Protection of consumer privacy.
For states not members of the SST,2 the minimum simplification measures they must implement prior to exercising the authority that MFA would grant, include:
- A single entity within the State responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the states.
- A single audit of a remote seller for all state and local taxing jurisdictions.
- A single sales and use tax return to be used by remote sellers.
- A uniform sales and use tax base.
- All interstate sales should comply with destination-based sourcing rules.
- Make available information regarding taxability of products and services including any applicable exemptions.
- Make available software that calculates and applies correct tax rates must be made available to all remote sellers.
Once states are members of the SST or implement the simplification measures specified within the legislation, they would be granted authority to require remote sellers to collect and remit sales tax.
(Full text of Marketplace Fairness Act)
Shane Ratigan is the Content Compliance Manager at Avalara. Avalara helps thousands of businesses reap the benefits of accurate sales tax processing, return preparation, remittance, and other vital compliance services, like reseller certificate management. To learn more, please visit http://www.avalara.com or send Avalara a message.