H.R. 3179, The Marketplace Equity Act
Before delving into how the competing federal on-line sales tax bills compare, let’s look at the Marketplace Equity Act (“the Act”) more closely. H.R. 3179 is defined as a bill “To improve the States’ rights to enforce the collection of State sales and use tax laws, and for other purposes”. The Act would grant States the authority to require sellers, who do not meet a state’s “Small Seller Exception”, to collect and remit sales tax on sales to in-state customers without regard to the seller’s location.
Specifically, the Act would require states wishing to obtain the authority to mandate out-of-state (“remote”) retailers to collect and remit sales tax, to implement a simplified system for the administration of remote seller’s sales and use tax collection responsibilities which would meet the following minimum requirements:
- A state would be required to define and establish a “Small Seller Exception”, which would exempt remote sellers with annual U.S. gross revenues of $1 Million or less, or in-state revenues of $100,000 or less, from the state’s remote seller collection requirement. Annual revenues would be based on figures from the preceding calendar year and states would be allowed to establish higher threshold amounts.
- A state would be required to provide a remote seller tax return and designate a single revenue authority within the state with which remote sellers are required to file their return. Under this simplification requirement, remote sellers cannot be required to submit any other sales and use tax return or to file sales tax returns more frequently than returns required by non-remote sellers nor would local jurisdictions be allowed to impose a local sales and use tax filing requirement.
- A state must also identically define, for remote sellers, products and services subject to tax throughout the state. Exemptions must also be identical throughout the state and cannot include products or services that are not exempt when sold by non-remote sellers.
- Finally, a state must require remote sellers to collect sales and use tax under one of the three following rate structures:
1. A single state-wide blended rate that includes both the state rate and an applicable rate for local jurisdictions, as determined by the state;
2. The maximum state rate, which is the highest rate at which sellers are required to collect tax by the state, exclusive of local taxes; or
3. The applicable destination rate, which is the sum of the state rate and any applicable rate for the local jurisdiction into which the sale was made. States choosing the destination option as the applicable collection rate would be required to make adequate software available to remote sellers that will substantially ease the burden of collecting at multiple rates, as well as relieve remote sellers for any tax, interest and penalty for collecting an incorrect sales or use tax amount, if the improper collection was due to relying on information provided by the state.
The Act provides that states which impose a lower sales and use tax rate on food and/or drugs and medicine, may require remote sellers to collect tax at the lower rates without being in violation of the simplified state rate requirements explained above. Additionally, the rates detailed in 1 and 2 above, can’t exceed the respective average state and local rates applicable to non-remote sellers.
The Act also provides that before a state can exercise its authority to require non-exempted remote sellers to collect and remit tax, a state fulfilling the simplification requirements must first publish a public notice with the title of, and references to, the enacted state remote seller collection legislation; the law’s remote seller tax collection criteria; the rate(s) that non-exempted remote sellers must charge on in-state taxable sales; the initial date remote sellers will be required to collect tax; and a reference to compliance information and the remote seller sales and use tax form. Once the Act’s simplification and public notice requirements have been met, a state may exercise its remote seller collection and remittance authority beginning on the first day of the calendar quarter that occurs at least six months after the date that the state published the required public notice.
Comparisons to the Main Street Fairness Legislation
One of the main similarities between the two federal proposals is that neither proposal requires that nexus be established. As I pointed out in prior posts on the Main Street Fairness legislation, a state must be a full-member Streamlined Sales and Use Tax Agreement (“SSUTA”) state in order to benefit from the remote seller collection authority granted by the Main Street legislation. (Note A) The Marketplace Equity Act would similarly grant its authority to states that meet the Act’s simplification and other requirements. Like the Main Street Fairness, the Marketplace Equity Act would not impose a national sales tax, as some might believe. Although both the Act and the Main Street Fairness would be federally enacted legislation, sales and use tax administration would still fall to the various states and rates would still vary by state.
Though the competing bills seek to impose a collection requirement on remote sellers exclusive of whether physical nexus has been created, the major difference lies in the Main Street Fairness legislation’s tie to the SSUTA and a state’s full-member status. For this reason, a major difference between the two proposals is that states that would be entitled to remote seller collection authority under the Main Street Fairness legislation, would not necessarily be the same states that would be entitled to this authority under the Marketplace Equity Act.
Although on its surface, the Marketplace Place Equity Act appears to make simplification, well, simple, there are some who believe H.R. 3179 was not adequately thought through, surrenders Quill protections without demanding sufficient simplification, and was quickly crafted in an effort to create a bi-partisan solution as efforts to advance the Main Street Fairness legislation in Congress had stalled. According to a recent CCH News & Information Report, the Act was drafted in an effort to build support amongst Republican House freshman in order to put pressure on the Republican House leadership to provide “cover” to sympathetic Senate Republicans.
And should the Marketplace Equity Act become law, what would this mean for the Streamlined Sales Tax Project, a government-business multi-state collaborative effort that over the last ten years has focused on simplifying sales tax collection and administration through uniform definitions of terms, uniform exemption certificates and administration, vendor compensation, use of Certified Service Providers to aid in the reduction of compliance burdens and more. Would enacting the Marketplace Equity Act eradicate all that has been accomplished by the Streamlined Sales Tax Project? Would states that are already SSUTA member states need to go over and beyond to obtain the benefits granted under the Marketplace Equity Act? And what incentive would non-SSUTA member states have to become Streamlined Sales Tax members if remote collection authority could easily be achieved by instead complying with the Marketplace Equity Act?
And who would guide, review and enforced States efforts to comply with the Marketplace Equity Act’s requirements? Would a Marketplace Equity Act Governing Board need to be created? Would this really be a step back to square one, back to re-creating what the Streamlined Sales Tax Project has already done?
Though I'll admit, the "noise" on enacting an on-line sales tax bill is getting louder, but with two competing bills on the table, does either one really have a chance? One lacks bi-partisan support, while the other on its surface, promotes simplification but perhaps hasn't been though through adequately. Is the Marketplace Equite Act really the simple solution? To borrow a quote from famous director, Marin Scorses, "There's no such thing as simple. Simple is hard".
Note A: For more on the "Main Street Fairness" legislation, see my two prior Main Street posts:
“Main Street Fairness Act. Is SST the Silver Bullet?”, SalesTaxSupport.com, 8/10/11;
“Can the Main Street Fairness Act Stop the Sales-Tax Madness?”, AllBusiness.com, 8/22/11
*The above post is based on Sylvia Dion's SalesTaxSupport.com post, "The Marketplace Equity Act: The New Competition on the Block", published October 25, 2011. The content from that post has been re-produced in the above post for the benefit of the "Buzz's" readers.
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