Earlier this month, we saw the introduction of yet another federal on-line sales tax bill. That’s right, on November 9th, S. 1832, “The Marketplace Fairness Act” was introduced in the Senate by Mike Enzi (R-Wy), Lamar Alexander (R-TN), Dick Durbin (D-IL) and seven other bi-partisan Senators. By the way, that’s the same Dick Durbin that introduced the Senate version of the Marketplace Fairness Act (S. 1452) this past July.
What this means is that we now have three competing federal bills, all
which seek to grant States the authority to mandate out-of-state (“remote”)
sellers to collect sales tax on sales to in-state customers, regardless of
whether such remote sellers have sales tax nexus to the state.
To quickly recap, the first of these bills were introduced
on July 29th, when Congressional Democrats in both the U.S. Senate
and House of Representatives introduced the Durbin bill (S. 1452), and the Conyers bill (H.R. 2701). Both bills read identically and go by the same “Main
Street Fairness Act” title. Then, on October 12th H.R. 3179, “The Marketplace Equity Act”,
an alternative remote seller collection bill, was introduced by U.S.
Representatives Jackie Speier (D-CA) and Steve Womack (R-AK). Although the “Marketplace
Equity Act” was a bi-partisan effort, the legislation was criticized for
being crafted too quickly and surrendering Quill protection without demanding
adequate simplification.
I compared the Mainstreet Fairness Act (“MFSA”)
to the Marketplace Equity Act (“MEA”) in my October 31st post
and
noted that neither proposal offered an ideal solution or appeared to have the
level of support needed to pass. The MFSA, which extends its remote
seller collection authority only to Streamlined Sales & Use Tax Agreement (“SSUTA”) full-member
states, lacked Federal Republican support. The MEA, though a
bi-partisan effort, was criticized for completely ignoring the efforts of the
SSUTA, creating its own simplification requirements and leaving SSUTA states,
who had already implemented simplification measures, to have to abide by a new
set of rules.
S. 1832, The Marketplace Fairness Act
Some would say that it’s because of these issues that yet
another remote seller collection bill was introduced. TheMarketplace
Fairness Act (“MFA”) represents a compromise solution which,
like the MSFA, grants remote collection authority to Streamlined
Sales Tax (“SST”) full-member states, while also providing a
separate set of simplification requirements, like the MEA, for
states who wish an alternative to the SSUTA’s requirements.
So what exactly does the MFA say?
The MFA provides that SST full member
states may require remote sellers that do not qualify for the small seller
exception, to collect and remit sales tax on in-state states beginning on
first day of the calendar quarter that is at least 90 days after enactment of
the MFA. Because the MFA looks to the
provisions of the SSUTA, the MFAdoesn’t elaborate on the SSUTA’s
simplification requirements in the actual bill. For instance, because the small
seller exception under the current version of the SSUTA provides that businesses
with less than $500,000 in revenue per year are exempt from the remote seller
requirements, this threshold would apply to states whose remote seller
collection authority under the MFA is based on their status as
full-member SST states.
States that are not SST full-members, but
who adopt and implement the MFA’s alternative
simplification requirements would also be authorized to require remote
sellers who do not meet the MFA’s small seller exception (as
defined in the MFA) to collect taxes on sales sourced to their
states in accordance with the sourcing rules detailed in the MFA.
To meet the MFA’s alternative simplification requirements, states
must provide all of the following:
- a
single state-level agency to administer all sales and use tax laws,
including the collection and administration of all state and applicable
local sales and use taxes for all remote seller sales sourced to the
state;
- a
single audit for all state and local taxing jurisdictions within
the state;
- a
single sales and use tax return to be used by remote sellers and
by single and consolidated providers and to be filed with the state-level
agency;
- a
uniform sales and use tax base among the state and its local
taxing jurisdictions;
- adequate
software and services to remote sellers and single and
consolidated providers that identifies the applicable destination rate,
including the state and local sales tax rate, to be applied on sales
sourced to the state;
- certification
procedures for both single and consolidated providers to make
software and services available to remote sellers, which include an
agreement to hold providers harmless for any errors or omissions as a
result of relying on state provided information; and
- 30
days’ notice to remote sellers and single and consolidated
providers of local tax rate changes.
In addition to these provisions, a state’s simplification
must include a requirement that remote sellers and single and consolidated
providers collect sales and use taxes under the applicable destination rate
(the sum of the state rate and rate for the local jurisdiction into which the
sale is made); agree to hold remote sellers using a single or consolidated
provider harmless for any errors and omissions by that provider; and relieve
remote sellers from liability (including penalties and interest) to the state
or locality for collection of the incorrect amount of sales or use tax if
collection of the improper amount is the result of relying on information
provided by the state.
States that qualify for remote seller collection authority
under these alternative simplification requirements are entitled to this
authority “no earlier than the first day of the calendar quarter that is at
least 6 months after the date the State enacts legislation to implement the
requirements.” In essence, a state would first need to pass legislation
giving the state authority to implement the MFA’s alternative
simplification requirements and then, would have a minimum of 6 months to put
all of the requirements and provisions in place.
Small Seller Exception Under Alternative Simplification
Requirements
Remote sellers whose annual gross receipts from total remote U.S.
sales were $500,000 or less in the preceding calendar year meet the MFA’s
definition of a small seller and are exempt from remote collection
responsibilities in states which choose to implement the MFA’s
alternative simplification requirements. Although the MFA’s small
seller exception is similar to the SSUTA’s $500,000 threshold, because the MFA states
that the $500,000 threshold includes gross receipts of related “persons”, as
defined in the IRC’s attribution rules under Sec. 276 or 707(b)(1), remote
sellers who are part of controlled group of corporations may be less likely to
qualify under theMFA’s alternative small seller exception.
Single and Consolidated Providers
One major distinction between the MFA and
the predecessor bills is the introduction of “Single and Consolidated
Providers”. The MFA defines these “providers” as “any person
certified by a State who has the right and responsibilities for sales and use
tax administration, collection, remittance, and audits for transactions
serviced or processed for the sale of goods or services by remote sellers”. In
practical terms, a consolidated provider could be an Internet retailer who
collects sales tax on behalf of sellers that use its hosting platform.
Sylvia’s Summation
In my opening thoughts, I asked “Has Congress finally gotten
it right?” To that thought I add “Is the Marketplace Fairness Act the
silver bullet?”
There’s no question that the issue of whether remote
retailers should collect sales tax is perhaps one of the hottest topics in
state taxation today! And while there are equally valid arguments about whether
remote retailers should be required to collect sales tax or not, the collective
clamor that it’s time to “level the playing field” and close the perceived on-line
sales “loophole” is undoubtedly creating a momentum not seen in prior years when
similar legislation was introduced.
Will this most recent Congressional attempt, which, by
retaining the efforts of the Streamlined Sales Tax project and introducing an
alternative for States who do not wish to become SST states, be the compromise
that passes? MFA co-sponsor, Lamar Alexander, certainly
thinks so. He’s been quoted as saying “If I were president of an online
retailer …… I’d make my plans to start collecting sales taxes wherever I sold
things in the United States.”
But will having three competing bills conferred over in the
same congressional session work against them all? (According to the most
updated information in www.govtrack.us,
a site which tracks the status of U.S. bills, all four bills are in
“committee”, the first step in the legislative process. The site notes that the
majority of bills and resolutions never make it out of committee.)
And what about the concept of “nexus”? The Marketplace
Fairness Act states that it has “no effect on nexus” and that the
authority granted the Act has no impact “in determining whether a seller or any
other person has nexus with any State for any tax purpose other than sales and
use taxes”. In essence, nexus will no longer be required for sales and use tax
collection purposes, but will be required for other state taxes. But does this
open up the possibility that Congressional efforts could be introduced to
circumvent nexus for other types of taxes? Seems absurd? I believe anything is
possible!
_____________________________________________________________
*The above post is based on Sylvia Dion's SalesTaxSupport.com post, "From Main Street to Marketplace Fairness Acts - Sales Tax 2011", published November 28, 2011. The content from that post has been re-produced in the above post for the benefit of the "Buzz's" readers.
For more about Sylvia's E-Commerce/Internet Sales Tax contributions to the SalesTaxSupport.com blog see side-bar text box.
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me on twitter at @SylviaDionCPA. Visit my company website at
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