Traditionally, some online merchants in the United States have enjoyed an inherent advantage over their brick-and-mortar counterparts: potentially being exempt from charging sales tax to their customers. As a result, many customers in states that collect sales tax from physical businesses located in their states turn to online retailers in an attempt to save money. The Marketplace Fairness Act of 2013 would change all that, but it is a long way from becoming reality. While the bill easily passed in the Senate, it has a much steeper climb in the Republican-controlled House of Representatives.
Marketplace Fairness Act of 2013
The Marketplace Fairness Act of 2013 would require merchants to collect sales tax based on the addresses of their customers. This is a change from the present law, which requires online merchants to collect sales tax only from customers located in states where the merchants have a physical presence, such as a warehouse. The reasoning behind the tax is to restore fairness to local merchants who must charge their customers sales tax by law.
If and when the law is put into place, customers who live in states that charge sales tax would have to pay the same tax when buying online goods as they pay when buying goods from a physical store, no matter where the online merchant is located. However, individual online merchants with less than $1 million in annual revenue would be exempt from imposing the sales tax on their customers.
This change would result in many more customers being charged sales tax, because as of May 2013, there are only five states that do not charge sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.Â Alaska does allow localities to charge sales tax if they choose. Delaware imposes a gross receipts tax on businesses of up to 2.07 percent of total sales receipts, but that tax is not paid directly by consumers.
Strange Bedfellows and Unintended Consequences
The bill has created unusual alliances. As might be expected, local brick-and-mortar establishments are in favor of the bill. However, mega-retailer Walmart and online giant Amazon are both in favor of the bill as well. On the other hand, online auction house eBay stands firmly against the bill, stating that it would impose an unfair burden on many of the small merchants who have established online stores through eBay.
If the bill passes and is signed into law, the result could also create the odd circumstance of attracting customers in neighboring states that do charge sales tax to brick-and-mortar stores located in states that do not charge sales tax. This may be especially true in the densely populated Eastern Seaboard, where it is conceivable that both online and brick-and-mortar retailers located in states that impose sales tax could lose business to physical stores located in Delaware and New Hampshire. This would be an unintended consequence of the bill.
Collecting Online Sales Taxes
In an attempt to reduce the burden imposed on online merchants, the bill mandates that free tax compliance software must be made available that would automatically figure the amount of sales tax that should be collected from each customer. However, the software would not collect the tax, nor would the software make tax payments to the various states. Each merchant would be responsible for meeting this obligation.
About the Author
Jennifer Watts likes to keep one eye on the U.S. government. A retired lawyer, she now spends her time contributing to business and law blogs on the Internet. If you are searching for web hosting, go to webhostingreviews.ca to read up on the latest reviews.