The Big Boon of the Marketplace Fairness Act of 2013

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By Mary Thomas, CPA, JD

Over the last year or so, the Marketplace Fairness Act (MFA) of 2013 has gotten a lot of coverage. Although the act passed in the Senate, the House of Representatives hasn’t yet voted on its passage, and in some circles, there’s concern it won’t pass because it’s unpopular, by a small margin, with some constituencies. Regardless, it’s highly doubtful that Congress will not eventually pass some form of legislation that enables states to capture sales taxes from remote sellers.

Whether MFA passes or remains stagnant, many accountants want to know more about the act itself. However, what we all need to remember is that MFA actually has nothing to do with the legislation recently and currently being passed by states to require remote sellers to capture sales tax.

A simplified narrative of how the act may apply to remote sellers includes the following:

  • The MFA must pass and become effective law.
  • States requiring the collection of sales tax must be a member of the Streamlined Sales and Use Tax Agreement (SSUTA) or adopt and implement minimum simplification requirements.
  • The state must publish notice that it is participating in the act.
  • The remote seller must have a minimum of $1 million dollars in remote sales in the United States in the preceding calendar year.
  • States will provide tax software and/or service from a certified software provider (CSP) in the year immediately after the minimum sales threshold to customers in their jurisdiction is met.
  • The remote seller may use software provided by the CSP to calculate sales tax collections.
  • The remote seller will remit collected sales tax to the appropriate state.

When a remote seller becomes responsible for collecting sales tax in a jurisdiction, there are several things MFA ensures, including "simplicity" of compliance, notice of tax rules and rates, and debt forgiveness in limited circumstances.

There’s a lot being written on the efforts of the SSUTA to simplify sales and use tax rules and procedures for taxpayers, yet the notice requirements are clear. The debt forgiveness provisions of MFA are a boon given to remote sellers in the event that mistakes are made when collecting sales tax in jurisdictions with which they do not have traditional nexus.

Debt forgiveness is only available if a remote seller uses software developed by a CSP. If an organization uses software not developed by a CSP, the organization isn’t protected against liability under the act. When remote sellers are audited and found to be noncompliant with sales and use tax laws, the tax, penalty, and interest associated with the incorrect collection, remittance, or non-collection of sales and use taxes, will be forgiven as follows:

  • The remote seller isn’t liable if mistakes are attributable to an error or omission made by the CSP. The software must handle the application of tax rules and rates correctly.
  • The CSP isn’t liable if the liability is the result of the provision of misleading or inaccurate information to the CSP. The remote seller must ensure that codes submitted to the CSP are complete and accurate.
  • Neither remote sellers nor CSPs are liable if the liability is the result of incorrect information or software provided by the state. The state taxing authority must publicize changes to tax rules and rates.

There’s a lot of interest in effectively capturing sales tax attributed to remote sellers. The authors of MFA attempted to make the law palatable by making compliance as easy as possible and by providing a mechanism that helps remote sellers if mistakes are made when collecting and remitting sales taxes on behalf of a state without traditional nexus.

Read more articles about MFA.  

About the author:
Mary Thomas is a CPA and attorney whose experiences in the accounting and legal fields bring added value to her firm’s clients. She is a principal of Thomas, Thomas & Thomas, a family-owned firm in Houston that works in state tax consulting and advisory services. Contact her at (281) 469-1103 or [email protected].


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"because it’s unpopular, by a small margin, with some constituencies." Really, Mary? Every paid op-ed I see discussing how great the Marketplace Fairness Act is, I also see tons of comments from *real* small business owners who know that "I from the government, and I'm here to help" is the most terrifying thing in the world to their economic health.

Marketplace Fairness Act is funded by the largest players in retail. Tell me the last time a small business owner welcomed a Walmart moving in to their town, or enjoyed the idea of Amazon and their Same Day Shipping.

Also, if you're going to post raves about "efairness", you might want to see what's the latest news, like the exemption disappearance.

Another disappointing post.

SBA study recently showed $1m small seller exemption would affect fewer than 2K remote sellers, or 2.5 - 4.5%. It also showed that raising the exemption from $1m to $5m would make almost no difference to those numbers. That means there's a big gap between the vast majority of online sellers, who would be exempted under MFA, and the big remote sellers that have gotten fat and happy on the taxpayer's dime.

Judiciary Chairman Goodlatte, who is still avoiding open debate on this issue, is the one responsible for trying to kill the small seller exemption. That's not the same as "disappearance." And since this article is posted on a blog for accounting issues, it should not be terribly surprising that it focuses more on the accounting software and related issues in the law.

There remain several aspects of the Marketplace Fairness Act worth being skeptical about: seller liability and accountability to ~45 different states (covered in part here), ambiguous compliance costs, and the best way to handle a small seller exemption. Some of these are tied to accounting issues, and I would love to see more robust analysis of them on this blog!

There is TONS of software that has been adding these tax automation efficiencies in the private market for years. It's easy and cheap enough to set up that some internet retailers do it voluntarily. Some of these private ventures offer to handle the whole thing, including customer support, for a few hundred dollars. Not all users in the history of the software have had a great experience, but most have. And the software companies are driven by market pressures to improve all the time. Those market pressures get even stronger under MFA since state legislatures would have to certify the programs and are likely to only certify the best-integrated and least-buggy.

Of course, you completely ignored my point that the vast majority of online retailers would be exempted under the current MFA, and offered no basis for challenging the idea that raising the cap would make a significant difference. I might even call it a reason to raise the cap, possibly with a sunset provision over 5 or 10 years. I would be interested to see how many of the small businesses you claim oppose this would actually be affected (vs. those tricked into thinking they would be affected by misleading messaging).

And by the way, your ad hominem attacks accusing those of us who treat this as a complicated issue deserving better than your platitudes of being "PR firms" is based on zero knowledge. You don't know me, or any of the business professionals who follow and post on this issue (including on that businessweek opinion, where I see thoughtful respondents getting abused like you did here by the usual small group of anti-MFA trolls that show up over and over to put up a grassroots facade of opposition). MFA will affect my life and my business, so, happily, you do not represent me or anyone like me.

Hoping for better from your small cohort next time.

JPTuttle, can you give some examples of the private ventures firms who are offering these compliance solutions? I would be interested in checking them out for my own business.

Not only are you self-serving, misinformed, but you're also just plain lame. Shill. Choke on your 30 pieces.

This article is a propaganda piece. It's ridiculously inaccurate and full of half-truths.

As a small technology business, it goes without saying our passion is technology. We didn't start our business so that we could become revenue collectors for the States: love the States, but they should be better stewards of the tax revenue they have and collect their own revenue. It should not be the responsibility and cost-burden of small business to collect tax revenue, particularly where they do not have nexus.

Did you know there are thousands of taxing districts covered by this law?

It would be a great burden on small businesses to remit to all of them. Please read James Sutton's speech to the House Judiciary Committee on March 13, 2014 ( ) He defines the problem clearly and offers a simpler, less burdensome solution to help the states collect their own use taxes.

Start at page 8 of Mr Sutton's paper.

Why I support theMarketplace Fairness Act – it will help millions of small businesses like mine


I’ve been reading a lot recently about proposed (or soon-to-be-proposed) federal legislation regarding online sales tax collection. But what I’ve read has mostly focused on Amazon and other large businesses, and I’d like to take a moment to focus on those who will benefit most by the proposed legislation: small business owners.

I’m a small business owner myself. My wife and I own and operate a small sheep farm in upstate New York. We sell our wool products online, and also frequently visit festivals and fairs in other states to sell our livestock, wool, and yarn as well. With every sale, I am faced with the complex and exhausting task of figuring out how much sales tax I need to remit and filling out all the sales tax return forms.

The Marketplace Fairness Act (MFA) provides an incentive for states to simplify their sales tax laws, so that tax categories and definitions are standardized from state to state and there’s just one simplified electronic sales tax return for all states. These simplification measures make a huge difference for me: no more trying to figure out if wool is in the same tax category in different states, no more filling out the wrong form, no more needless hours or money spent looking up all the different sales tax rates and figuring out which ones apply to which products.

At this point you may be wondering how the MFA accomplishes all this. After all, the bill simply permits states to require out-of-state retailers (including online retailers) to collect sales tax. But the key is, only those states that have simplified and standardized their sales tax laws would be able to do so. In essence, the bill says that states can require out-of-state retailers to collect sales tax, but only if they make it easy for retailers like me to do so.

A key part of making it easy for retailers to collect sales tax is technology. As one might expect, there are online services available to manage and even automate sales tax for retailers, from calculation to collection to filing. The MFA plays a key role in helping these services and states work together. It’s even requires a certification process for sales tax management services to ensure that every state desiring collection authority must test the services and verify they adhere to states laws. For the Streamlined States, at the end of the process, if the service passes, the company offering it becomes a Certified Service Provider – hopefully the certification programs prescribed in the MFA for non-streamlined states will adopt a similar system. The features CSPs offer can vary, but for the most part they manage every aspect of sales tax for the retailer—they calculate the sales tax due, file all the jurisdictional sales tax returns, manage tax exemptions, and even take care of any audits.

Just over a year ago, I grew so tired of having to deal with the current complex and cumbersome task of remitting sales tax to other states that I began searching for some kind of solution on the internet. Fortunately, I quickly found a free service called TaxCloud, a SSUTA CSP service, which began managing my sales tax calculation, collection, and remittance for every tax jurisdiction in the United States. It was not only simple—it’s completely free of charge.

The combination of this technology and the states’ simplification efforts ultimately unravels a huge web of entangling forms and paperwork, freeing businesses like mine from bureaucracy, promoting efficiency, and increasing productivity and, most importantly, profitability. They make dealing with sales tax much, much easier for small business owners.

Small business owners like me truly benefit from the simplification of current cumbersome filing requirements and associated expenses. I want more and more states to simplify their sales tax laws, and I know that we need the MFA to make that happen. Therefore, I support the Marketplace Fairness Act.

As I’ve learned more about the issue I’ve discovered there are many other reasons to support the MFA, but the reason I first found myself supporting this legislation is not one that I’ve seen addressed anywhere: it makes sales tax compliance very easy for small businesses (and probably for large ones, too). It’s particularly important for retailers who sell in multiple states, whether through a website or catalog or at state fairs and festivals.

We all know that our states are facing major budget issues and need the revenue that the MFA will provide. Don’t get me wrong; I dislike taxes just as much as anybody—but I also don’t like finding out that that the ballot initiatives we voted for in my community are going unfunded because remote retailers are not required to collect the tax we already approved.

To be clear, the MFA does not create any taxes or raise any taxes. It simply makes collecting the tax already due much easier for the millions of small business owners just like me. Consumers also benefit because they are relieved of the obligation to keep track of and remit the sales tax due on their individual state tax returns.

Congress, I urge you—enact the Marketplace Fairness Act.