Senate Passes Online Sales Tax Bill
As you may or may not know, The Marketplace Fairness Act of 2013 (MFA) has been creating quite a commotion for online retailers. This legislation is a damaging prospect for small online businesses. As of yesterday, May 6, 2013, the Senate approved the legislation, moving it one step closer to enactment. If the bill is passed by the House, it will give states the authority to require online businesses to collect sales tax.
Academic studies have estimated that more than $12 billion additional sales taxes will be collected from Ecommerce stores each year, if this bill is passed, according to CNN.
An Undue Burden on Small Online Businesses
According to a survey of over 2,500 consumers, conducted by Alix Parners advisory firm, close to 30% of online shoppers said that they would be more inclined to shop at more brick-and-mortar stores if the law came to pass. Additionally, there are over 10,000 unique tax jurisdictions across the United States. This new legislation threatens a laborious and costly burden for online retailers forced to comply with complicated tax rates and systems.
The smallest businesses are going to feel the biggest impact if the sales tax bill is passed. As a small business, working out of state A, State B will be able to audit and mandate certain tax requirements from that business. Most small businesses will not have the resources or ability to respond to that, and it could be detrimental to their online store.
The Marketplace Fairness Act of 2013 exempts businesses that have less than $1 Million in gross remote sales per year. However, the Internal Revenue Service defines small businesses as those having $20 million in annual revenue. The Small Business Administration considers the cutoff to be at $30 million. This threshold is too little and does not include enough of small businesses to be considered “fair.” As the act is gaining steam, the House has expressed that it strongly supports the Marketplace Fairness Act.
The Next Step
If the White House passes the bill, it will likely be signed into law. Many states would then be able to enforce this new authority as soon as 180 days after, dramatically changing the sales tax landscape for many businesses. The House has its own version of the Marketplace Fairness Act, which has yet to be scheduled for a hearing or vote.
While waiting for the House’s decision, be proactive to find out if your business is prepared for remote sales tax with information from Miva partner Avalara.
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