Editor's Note: This is the second part of a two-part series that takes a closer look at online sales tax legislation.
Internet sales taxation is an important topic for small online sellers who found a way to create their own business niche in the face of a difficult economy.
In part one of this series, "Digging Deeper into Online Sales Tax," we looked at a brief history of remote seller taxation laws and how the Internet brought us to Washington's most recent bill on the issue, the Marketplace Fairness Act of 2013.
New Congress, new proposition
By the end of 2012, the 112th Congress failed to pass any of the proposed online sales tax bills and, when Congress concluded its term on Jan. 3, 2013, all preceding bills died with it.
Not long after the 113th Congress was initiated, the Marketplace Fairness Act of 2013 (S.336, H.684) was introduced in February.
The Senate is expected to vote on the Marketplace Fairness Act on Monday.
The new bill will grant authority to collect remote sales taxes to Streamlined Sales Tax full-member states, and to non-member states that adopt simplification legislation
Though it goes by its most recent predecessor's name, the bill is independent of its ancestors and has both similarities and differences with the former MFA, says Sylvia F. Dion, a certified public accountant and tax consultant. Additionally, it is a bicameral proposal that could evolve into two different proposals as each house molds it.
This new bill will grant authority to collect remote sales taxes to Streamlined Sales Tax full-member states, and to non-member states that adopt simplification legislation, she adds.
"Key differences include an increase in the dollar threshold for the small-seller definition, the requirement that states must provide free sales tax calculation software to remote sellers (other than those that meet the small seller exception), the exclusion of single and consolidated service providers, and a pre-emption clause which may be interpreted as an expansion of state's powers," Dion says.
If they pass it, you will pay
If MFA 2013 passes relatively as is, retailers of all shapes and sizes should be prepared to pay the price.
Dion advises her e-commerce clients on several points regarding this bill. The first, she notes, is that even if any bill like 2013 MFA is enacted, the Amazon tax laws initiated in several states are still applicable, regardless of a seller's revenue.
"Small [to] medium sellers will need to monitor not only state Amazon legislation, but also monitor which states are complying with the federal law," Dion says.
Sellers who exceed the bill's "small seller" definition should be paying attention to which tax actions each state is taking, she adds.
"For instance, states have to put in place all of the simplification that the MFA 2013 requires, or the state may need to enact state legislation that will authorize the state to implement the federal law's requirements," she adds.
Dion notes that if Congress enacts a bill similar to what's presented, small merchants will need to find a tax calculation tool that can help them with the varying tax rates they are going to encounter. States will be required to provide free software to sellers, so finding a program shouldn't be too hard.
However, tax rates are so complex in every state, and sometimes there are even tax holidays that sellers will need to know about if they want to remain up to date and competitive.
As many as 285 organizations support the bill, including Amazon. Only 17 are noted as opposed, one of which is eBay
The Marketplace Fairness Act website, which summarizes the legislation, notes that in this age it is "no longer an insurmountable technical, administrative or financial burden" to keep record of varying taxes, as once demonstrated in the Quill and Bellas Hess cases.
As many as 285 organizations are listed on the website as supporters of the bill, including Amazon. Only 17 are noted as opposed, one of which is eBay.
A taxing debate
Some of eBay's concerns seem to center around the language of the bill and the small-seller threshold of $1 million. Brian Bieron, eBay's senior director of Global Public Policy, says the small business exemption level is too low in relation to where the government currently defines small businesses.
The bill's threshold of $1 million would encompass too many small businesses that would be negatively affected by the law, Bieron notes.
He says in a video Q&A that giant retailers are trying to hurt small businesses by imposing the same tax burdens on them that they face.
In a nutshell, Bieron concludes eBay's opposition succinctly.
The playing field won't be level until brick-and-mortar stores [also] have to collect a different sales tax according to where each walk-in customer lives
"The current bill essentially puts retailers with a handful of employees in the same sales tax bracket as the largest retail businesses in America, requiring them to become tax collectors for every state, raising prices, imposing collection costs, and threatening them with audits and litigation by tax collectors from states that are thousands of miles away from where they live, work and create jobs," he says.
Amazon, on the other hand, supports the language in the 2013 MFA bill, stating in a letter to the Senate that "Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers."
In a press release, Amazon further explores the need to address each state's financial needs.
"The states face serious budget shortfalls," it notes. "Adopting sales tax collection reform is a way for Congress to help the states without spending federal funds. S.1832 would simply allow the states to collect more efficiently the billions of dollars of uncollected sales/use tax revenue already owed."
And, of course, the most important voices on the topic are the small sellers who will be affected by new tax laws. In a recent article on the subject, Susan Prentice commented about her concerns regarding these new bills.
She points out that online sellers will be responsible for different tax rates dependent on where the buyer resides, but brick-and-mortar businesses only have to collect taxes based on the district they are physically located.
"The playing field won't be level until brick-and-mortar stores have to collect a different sales tax according to where each walk-in customer lives because that's what they're proposing for online sellers," she says.
Read part one of this series, "Digging Deeper into Online Sales Tax."