MFA Update

Remember Dr. Doolittle’s PushMePullYou, the llama-like animal with two heads? Since each end had a different natural inclination, it was hard for it to decide which way to go. A recent sales tax bill is facing a similar problem. For decades, online businesses have held a strong competitive advantage over traditional stores. Remote sellers have had the ability to sell their merchandise without being required to collect sales taxes. Consumers still owe sales tax on their purchases, but many don’t pay them, so an online purchase ends up being cheaper than the same item bought locally in a brick and mortar store. On July 15 of 2014, the Marketplace and Internet Tax Fairness Act was reintroduced in the Senate.

The bill is intended to level the playing field between traditional and online businesses by allowing local and state governments to enforce existing sales tax on remote sellers. This means that online sales giants like eBay and Amazon will no longer receive the benefit of tax free purchases. On the other hand, small ecommerce business owners may find relief in knowing that businesses with less than $1 million in revenue would be exempt. Bigger online businesses may yet have to plan ahead for these potential changes to the world of online sales. The bill also provides a 10 year extension on the Internet Tax Freedom Act. The act prohibits the collection of taxes on Internet access services by individual counties.

Currently there are only 7 states (Hawaii, Ohio, Texas, Wisconsin, New Mexico, South Dakota, and North Dakota) that were “grandfathered in” and allowed to continue taxing internet access. The Marketplace Fairness Act passed the senate with vast bipartisan support (69 Yeas – 27 Nays) in May of 2013, but ultimately expired in the House of Representatives. The Permanent Internet Tax Freedom Act, if passed, would eliminate the exempt status from the grandfathered states. Both the NACo and Congressional Budget Office are in opposition to the bill, because of claims that it will deprive the states and local governments of several hundred million dollars on an annual basis. Putting the two issues — internet access taxes and sales tax on ecommerce — into the same bill may cause problems for both.

While the MFA, if passed, would increase state revenues, the Internet Tax Freedom Act would reduce it. The ITFA is opposed by many on the grounds of fairness, while the MFA is generally supported on the grounds of fairness. A combined bill might end up being a political PushMePullYou.

Latest Articles

Senate Finance Committee Examines Wayfair Decision

Senate Finance Committee Examines Wayfair Decision

The Wayfair decision Four years ago, the Supreme Court's decision in South Dakota vs. Wayfair changed everything about sales tax compliance for businesses with revenue from multiple states. Instead of being responsible only for transactions in states...

read more
Do We Still Care about Physical Nexus?

Do We Still Care about Physical Nexus?

The new nexus Before the Supreme Court's decision in South Dakota vs. Wayfair, remote sellers only had to collect sales tax when they had a physical presence in a jurisdiction. A store, a warehouse full of your products, affiliate sellers -- these...

read more
Sales Tax and Barter

Sales Tax and Barter

a The Barter Life It used to be that businesses only had to collect and file sales taxes if they had a physical presence in a state: an office, a store, a warehouse, or a factory, for example. A small business using e-commerce to sell in other states or...

read more