The Marketplace Fairness Act (“MFA”) has been in the news quite a bit lately, and no wonder. The proposed Federal law, which if passed will result in sales tax on Internet sales across state lines, cleared its first Senate barrier on Monday, and is expected to be passed by the Senate this week.
As Marketplacefairness.org explains, “The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.”
Simplification, though, isn’t so simple. By one reckoning there are 9646 separate and distinct tax jurisdictions in the United States. Compliance with the “Streamlined Sales and Use Tax Agreement” (“SSUTA”) has been deemed to meet the requirement for simplication.
Laments Overstock.com CEO Patrick Byrne, “How can we possibly know the tax rates in [those] jurisdictions? In one jurisdiction, cotton candy is food; in another it’s entertainment or candy.”
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Of course, big box retailers are all for a law which wipes out the current competitive advantage that Internet retail sites have over their brick-and-mortar brethern; namely that most online sales go through tax-free.
But in a move that may surprise some, Amazon, who has been notorious for balking at any state effort to tax their online transactions (particularly when it comes to their Amazon Associate program), is in favour of the Marketplace Fairness Act.
In a letter in support of the MFA, Amazon’s Paul Misener says “Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers. With this in mind, I am writing to thank you for your bill, which will allow states with simplified rules to require sales tax collection by out-of-state sellers who choose to make sales to in-state buyers.”
The MFA contains an exemption for so-called “small retailers”, who have less than $1million in sales per year. But any Internet retailer with more than $1million in sales would be required to collect sales tax on all sales for any state or jurisdiction that has complied with the “simplication” requirements.
So, when (and we do believe it is “when”, not “if”, it’s only a matter of time before some sort of tax act passes) this passes, how will it affect consumers? Well, most obviously, it will mean that the tax advantage of ordering online will go away. Or, will it? Because at least some savvy online retailers will still have enough of a competitive edge in their margins to be able to offset the new Internet sales tax with lower prices. If this is what happens, the net result could actually be a win-win – consumers will still pay less than going into big box stores, while states will get a much-needed infusion of cash in their coffers. In the meantime, the big boxes and bricks-and-mortars who were hoping for a level playing field may still find themselves at a competitive disadvantage.
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Simple: have one UNIFIED Internet Sales Tax…. Charged at say, 10% and collected by the Feds. Split would be: 1/3 to Feds, 1/3 to buyer’s State, 1/3 to seller’s state.
I admit my idea does not cover everything, but it is a start….