The Impact of Marketplace Fairness

July 9th, 2013 by DWM Magazine

Small businesses can expect big changes should the Marketplace Fairness Act (MFA), or any similar act, pass through Congress says Shane Ratigan, content compliance manager with Bainbridge Island, Wash.-based tax compliance management firm Avalara.

“Sales tax remains an area of concern for all businesses whether or not the act passes,” says Ratigan. “It relates to what the current sales tax solution is. Some companies are already very sophisticated. They’re already complying in a way that marketplace fairness won’t impact them. The majority of businesses that meet that inclusion … it will be time to seriously take a look at the current sales tax solution because likely they are going to have expanded sales tax obligations. It’s time to pull back the curtain and take a look at what the current sales tax solution looks like and how to deal with it efficiently and accurately.”

Ratigan says company obligations will be the primary change resulting from the implementation.

“The core element of marketplace fairness relates to the legal obligation to collect sales tax,” he says. “If it passes, it focuses on those obligations. It’s going to create obligations in states for companies to collect tax where they currently weren’t obligated to collect before.”

Several misperceptions, Ratigan adds, have many business owners confused about the nature of the act.

“A common misperception of marketplace fairness is that it dictates what’s taxable and what isn’t. It solely focuses on the obligation to collect,” he says. “The idea that marketplace fairness applies only to online sales is another misperception. The bottom line is marketplace fairness applies to any sale that qualifies as a remote sale. It doesn’t matter if the sale is consummated online. It is going to impact online vendors; it may not impact many brick-and-mortar vendors. MFA doesn’t apply to whether a sale is made on the Internet or not.”

Consistency in interstate tax codes is one benefit Ratigan believes MFA may produce.

“As a tax professional, what I see is that it is going to require some uniformity between the states. It’s not necessarily going to make items taxable everywhere, but it will require states that want to participate in the remote seller applications to simplify and streamline their processes. They’re going to have to create a single-return portal for the seller and have a uniform rate,” says Ratigan. “They’re going to have to make life easier for remote sellers in many states. States that aren’t on the cutting edge of technology and uniformity … are going to have to pick up their game a little bit.”

Though the act may not pass, the awareness it brings to dissimilar tax codes may be enough to change company tax procedures.

“For business models, I think anyone who has a shopping cart on their website; they’re going to feel the impact of this. The bottom line is whether or not MFA passes or not, the moment is here for businesses to take a look at sales tax solutions,” Ratigan says. “Whether or not it passes, its impact is already being felt.”

According to the streamlined sales and use tax agreement portion of the bill, “Each Member State under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception described in subsection (c) to collect and remit sales and use taxes with respect to remote sales sourced to that Member State pursuant to the provisions of the Streamlined Sales and Use Tax Agreement, but only if any changes to the Streamlined Sales and Use Tax Agreement made after the date of the enactment of this Act are not in conflict with the minimum simplification requirements in subsection (b)(2).”

The bill passed the Senate May 6, but currently sits with the House.

For more information on the bill and to read it in full, visit www.marketplacefairness.org.

Casey Neeley is assistant editor for DWM magazine.

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