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].