New Bill May Change the Sales Tax System

Aug 18th 2014
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If your clients include retailers, pending federal legislation allowing states to tax Internet sales could mean big changes in the way they process and account for their sales and use taxes.

In July, the Marketplace and Internet Tax Fairness Act was introduced in the Senate. The bill combines the earlier Marketplace Fairness Act and Internet Tax Freedom Act.

Here's a snapshot of SB 2609:

  • States can require a remote seller to collect sales and use taxes only if the seller's gross annual receipts in total U.S. remote sales for the prior year are more than $1 million.
  • "States" also include the District of Columbia, Commonwealth of Puerto Rico, Guam, American Samoa, U.S. Virgin Islands, Commonwealth of the Northern Mariana Islands, any other U.S. territory or possession, and tribal organizations.
  • "Remote" means sales into a state based on sourcing rules.
  • "Sourcing" refers to where the product or service is received by the buyer. If an address is unknown and a billing address is unavailable, the remote sale is sourced to the seller's address.
  • With what are called the minimum simplification requirements, states will provide a single entity that's responsible for administering state and local sales and use taxes for remote sales, processing returns and audits; a single audit of remote sellers for all taxing jurisdictions; and a single sales and use tax return to be used by remote sellers.
  • States can't require more of remote sellers than they do of non-remote sellers.
  • States must provide free software for remote sellers to calculate sales and use taxes, and file returns.
  • Software service providers must be state certified.
  • The bill doesn't encourage states to impose new taxes.
  • There's no effect on in-state sales.
  • Amends the Internet Tax Freedom Act to extend the ban on Internet access taxes to Nov. 1, 2024.

"The shopping center industry would like to thank Senators Mike Enzi, R-Wyo.; Dick Durbin, D-Ill.; Lamar Alexander, R-Tenn.; Heidi Heitkamp, D-North Dakota; Susan Collins, R-Maine and Mark Pryor, D-Ark. for their steadfast leadership on this issue and for working tirelessly to move long-overdue sales tax fairness legislation forward", said Michael P. Kercheval, president and chief executive officer of the International Council of Shopping Centers, in a prepared statement. "This bill signals that leveling the playing field for all retailers is a top priority for Congress this year."

Traditional brick-and-mortar retailers have long complained that web-based companies had an unfair advantage in that sales and use taxes often weren't collected.

Jonathan Barsade, whose company, Philadelphia-based Exactor Inc., offers cloud-based solutions for sales tax compliance, says it's time that Internet commerce got the respect it deserves.

"E-commerce has reached maturity and there's no reason we should treat it as some sort of start-up that needs additional incentives", says Barsade, an attorney who specializes in taxation and technology.

And for CPAs and tax attorneys, the legislation would expand their scope of business and be a business aid, he says. "It will insert a level of certainty and sanity to the environment."


Replies (5)

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By Facebook User
Jun 25th 2015 20:11 EDT

Proponents of this bill say it will be easy. REALLY? Have they ever tried to integrate tax software into a customized shopping cart? LOL!! Like
“OBAMACARE“ easy? Even if we take them at their word "only one state tax rate" and "perfect running software to calculate", HOW DO
PAYMENTS GET REMITTED to all 46 states? Do we write 46 monthly checks? Fill out 46 separate monthly sales tax returns?


Not all small merchants are order automated and to input additional information by hand is both time consuming and interferes with normal business operations. What about audit risk? Can the tax board in Tennessee come after a merchant in Florida? Is it moral to burden
an out of state merchant to collect taxes on behalf of a state they don't live
or work or vote in? Why not ask China or Mexico to collect Tennessee taxes? Is this constitutional? Will surely be challenged in the courts, but why this legislation is truly harmful is that in such a weak recovery (check labor participation rate, wage growth, hours worked, etc.) you are burdening the very small businesses that are one of the only sources of growth in our economy. Hiring in this sector will freeze or decline and companies that are mobile and of large enough scale will simply move offshore. Our tax code is already written in a manner that encourages large companies to domicile offshore, this legislation encourages the medium and even portable smaller sized USA businesses to join them in order to compete with websites that won't have to collect this tax in the Caribbean, Mexico, Canada, etc.

The tax revenue collected will come right out of the pockets of the average American family and the extra $$$ our citizens will have to pay means LESS money in their pockets to spend locally.

In terms of "Fairness", there is ZERO entry barrier for any brick and mortar retailer to sell their products online.

HOW ABOUT AN OPT OUT OPTION? We agree not to ship to states that want us to collect sales tax and then we are not forced to multiple file and take the audit risk? One million dollars of revenue does not make you a big a 5% profit (small margins are common online) you are making a whopping $50K of gross profit annually......this will ensnare and burden a TON of small businesses if passed in its current configuration. The unintended consequences will be breathtaking.

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Replying to Julian Block:
By Rick
Jun 25th 2015 20:11 EDT

Not sure how you had a typo with seemlessley - it's a copy and paste job from your previous nonsense. Yes, a sheep farmer with an Etsy store and some unnatural love or ties to Taxcloud... can tell us about the actual challenges of a REAL ecommerce site.

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By Susan Lindsey
Jun 25th 2015 20:11 EDT

Better refer to the facts rather than feed the giant retailers with a pet act that would put money into their pockets.

The facts are: 1) Online retail is 6% of all retail, which was $260 billion in 201.

2) Giant retailers (Wal-Mart, Best- Buy, Home Depot, Macys, etc.) control 90% of the Internet and won't be adversely affected by the MFA because they already pay sales taxes,

3) The giant retailers have lobbied with over $100 million before legislators and would benefit from passage of the Marketplace Fairness; Act; even more lobby funds are being spent to pass July 2014 Enzi's proposal that the MFA be attached to the Net Neutrality Act continuance.

4) When you deduct the giant retailers' online sales, that leaves $24 billion gross sales collected by the smaller online business and $4 billion calculated use tax, reduced to $2.8 billion calculated use tax when B2B is deducted. If the MFA passes with lower limits of $1 to $10 million exemption for the smallest businesses, then that leaves less than $1.8
billion use tax.

5) When you divvy up that less than $1.8 billion use tax amount among 45 states, over 10,000 sales tax districts across the country, and the territories, the states won't realize windfalls. In fact
the cost to the smaller businesses and the state tax payers that would have to pay the cost of implementation would be greater than the use tax collected.

State auditors are the right entity to collect use tax from their in-state residents and these auditors have admitted that there's so little to be had, that they don't go after it; however, they are fine with the smaller online sellers collecting it for them even though it would destroy many of the online sellers;

6) Small retail WON'T benefit from the MFA; over 40% of these local retail businesses also sell online in order to compete against the giant retailers, in addition to selling out of their brick and mortar;

7) Requiring smaller businesses to code merchandise according to over 10,000 different sales tax districts, pay high costs for software implementation (although viable solutions mostly do NOT exist), and enduring audits from 45 states in which they do not live is a huge hardship for these businesses. Many will go out of business.

8) Small business provides 52% of jobs. The MFA would weaken the economy and add to unemployment.

Pure and simply the MFA represents big government aligned with big business. We need less of that, not more. It's a small business killer. We need to support startups, entrepreneurial, and small business efforts, not kill them.

Join us in fighting the MFA:

Share & create tweets at:

Contact your legislators and tell them that,
"We don't want Internet sales taxes."
One of the best ways to leave your message is to leave the comment on
your legislator's Facebook page. You can
also contact your legislator at:

You'll find gallop and other polls documenting
by state and nationally that Americans don't want to tax the Internet. Share the results with your legislators on
their Faceook page and also when you contact them otherwise:

We've created an organization, as well, where you can find a great
deal of information:

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Replying to Szerlip1EA:
By StenWilson
Jun 25th 2015 20:11 EDT

No CEO desires to kill an entire sector of the economy as you suggest. That would result in tremendous economic turmoil. Good luck with that thesis. Large corporations support the legislation because it grows the economy, decreases unemployment, increases money velocity and therefor creating greater market opportunity.

Driving businesses out of business increasing unemployment, lowering disposable incomes, compelling states to continue increasing property, income and other taxes to compensate for the growing amount of evaded sales taxes is in no ones best interest. By not supporting Federal legislation the future of millions of businesses both Internet and brick and mortar based are in jeopardy.

Your funny. I only have to file one return manually/ All 24 SSUTA tax returns are all completely automated... No stamps, no envelopes, no burdens. The MFA requires the same processes and simplification standards for all states seeking collection authority of remote sales tax. Any state that chooses not to simplify can not compel you to submit remote sales taxes.

It is actually easier to comply since I am completely indemnified against any audit concerns. In addition should any state enact crazy nexus laws, as PA recently tried, I am ready with the click of a mouse to process sales tax for any state. The last thing I want is a non SSUTA state coming after me which they can do today. The Marketplace Fairness Act and the standards set forth within protect me from the unnecessary audits that non certified states are working on today. The scary part is without passage of Federal legislation and the provisions set forth within, e-commerce merchants will become the prey of individual States' DORs.

The opposition can continue their denial and fear campaign hopeful to maintain their ill gotten 6% price advantage based on outdated 1992 tax policies. If I were you I would be, and I am, extremely concerned as to how many small businesses will be able to survive on their own without passage of Federal legislation.

In my opinion this is what eBay is hoping for. Their desire is to keep efficiencies and profits out of small businesses in order to facilitate greater demand, dependency and profit for them.

Every other Internet platform and large e-commerce retailer supports Federal legislation granting States rights' to efficiently enforce their existing sales and use tax policies. eBay is the only major e-commerce platform which opposes legislation and supplies the misinformation you continually cite..

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By Susan Lindsey
Jun 25th 2015 20:11 EDT

Seldom discussed are new demographics spreading throughout the US. Yes, I'm sure that the malls would love to see this act passed, given that they have been experiencing over a 32% footprint decline. Shopping trends have turned away from mall shopping and moved in the direction of neighborhoods and local business. But neighborhoods are preventing big boxes from entering and participating in this more robust shopping experience. The giant retailers are angry and have devised a way to enter this rapidly emerging selling arena by targeting and scapegoating the smaller online sellers.

Retail space inventory in these flourishing neighborhoods is scare to non-existent, depending on the neighborhood. Given that over 38% of small local retail depend on Internet selling to compete against the giant retailers' underpricing, passage of Reid's act that yokes the MFA with net neutrality could help shut down local businesses and make room for reinvented smaller version of giant retailers.

Isn't it great that the playing field will be leveled, made possible by now over $110 million lobby funds swaying the legislator's vote. How wonderful that we would experience even more the homogenization of America as more and more small business continue closing than are starting up! If this act passes, we'll see giant retailers and big recognized name brands such as Amazon, Walmart, Macys, HomeDepot, Target, Sports Authority, etc., replace small retail businesses The giant retailers already control more than 83% of Internet sales (quickly approaching 90% now that Amazon has become pro-Internet taxation). They'll use reverse-showroom devices similar to that provided by eBay to allow in-store shoppers find what they want and have it delivered for pickup at service counters or delivered to their home. Heck these giant retailers could even replace the dwindling smaller sellers on eBay. In fact, those big retailers that don't operate as nimbly on the Internet as Amazon does would find eBay's established selling venue particularly helpful. Amazon might also generously offer its slick selling platform for similar usage.

Increasingly, these giant retailers are using their big boxes like warehouses that briefly hold merchandise so it can be quickly moved about within or among states. In fact, this tactic would help them keep inventory low, another advantage. Unlike the smaller online and local businesses, the giant retailers would have much to gain. Indeed, the MFA would rectify how these little Davids have been victimizing the retail Goliaths! By killing the small guys, the giants would undeniably increase their sales and realize bigger stock market share prices.

The pro-Internet taxation legislators look upon such gains with glee because it could only mean that more lobby funds await them around the corner when these 800 pound gorillas again seek another "fairness" remedy.

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