Internet Sales Tax Clears Senate Hurdle
By Ken Berry
New legislation authorizing the states to collect sales tax from companies peddling their wares online breezed through the Senate on May 6 by a wide 69-27 margin. But the Marketplace Fairness Act is expected to face much tougher opposition in the Republican-controlled House of Representatives.
Under the proposed law, states and local governments would require Internet and other remote sellers with more than $1 million in annual sales to collect sales taxes from consumers. Then these entities would be required to remit the tax revenue to the appropriate authorities. If the law is enacted, businesses ranging from giants like Amazon to much smaller dotcoms will certainly have their work cut out for them.
Complying with the Marketplace Fairness Act
Harley Duncan, managing director and state and local tax leader in KPMG's Washington National Tax practice, shares these tips for retail businesses:
- Register with the states in which you are/will be taxable.
- Examine your catalog and determine what is taxable.
- Be prepared to receive and manage exemption certificates for exempt purchasers.
- Once you are liable for remitting taxes, obtain the appropriate tax rates, remit sales taxes, complete filing requirements.
- Find a way to integrate this process within your business operation.
Although some momentum appears to be building for passage, the outcome in the House is far from clear. Congressman Goodlatte (R-VA), chairman of the House Judiciary Committee, voiced caution in a prepared statement. "I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet. While it attempts to make tax collection simpler, it still has a long way to go," said Goodlatte. "There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions. There is also concern that despite disclaimers the bill could open the door for states to tax or even regulate beyond their borders. I am open to considering legislation concerning this topic but these issues, along with others, would certainly have to be addressed."
Harley Duncan, managing director and state and local tax leader in KPMG's Washington National Tax practice in Washington, D.C., has been closely following the progress of the proposed legislation. He emphasizes the need for advance planning. "It's time for businesses to start thinking about what they will have to do to collect tax on goods and services," Duncan told AccountingWEB in an exclusive phone interview.
Duncan outlined several steps that an online retailer will likely have to take to comply with the law. "First, you have to register with the state. Then the biggest task is to take the catalog and figure out what will be taxable," says Duncan. He adds that some states will exempt certain entities such as non-profit organizations, so businesses must understand and be prepared to receive and manage exemption certificates from their exempt purchasers. Also, businesses will have to obtain the appropriate rates, remit the sales taxes, and complete the filing requirements. Finally, the entire process must be "integrated within the business operation."
"The whole issue is trying to simplify the sales tax system," notes Duncan. Yet he raises concerns for a business currently collecting sales tax in only two or three states that would have to comply with these requirements for virtually all the states. "It is a significant issue that takes time and effort to plan and execute on the business level," concludes Duncan. He advises online sellers who will likely be affected by the legislation to begin preparing sooner rather than later to comply with these rules.
- New Law Requiring Tax on Internet Sales Moves Forward
- How to Prepare Clients for the Marketplace Fairness Act