The Marketplace Fairness Act: Fair of Unfair?

Back in Summer of this year, MFA: the “Marketplace Fairness Act” was passed by U.S. Policymakers by a 69-27 bipartisan vote. The act would allow states to enact laws that force retailers to collect sales tax for their operative state, regardless of whether the buyer even resides in that state and has no connection to it. For example, if a boutique store in Nebraska sells a shirt to a person in Louisiana, the retailer would be able to take Nebraska sales tax on the purchase and remit it to the state.

In the early 90’s court case, Quill Corp. v. North Dakota, Supreme Court Judges made a decision that prohibited North Dakota from levying a sales tax on transactions to North Dakota residents by a retailer from another state with no physical presence in N.D.. Regardless, the court in its opinion implored other policymakers to act on the issue with new legislation; The The MFA is Congress’ (late) acceptance of that invitation.

The meaning of the bill is varied: First, states don’t currently acquire the capital they need with the current enacted laws. According to the current law of most states, purchasers must concede a “use” tax to their state of residence if they are not charged sales tax on a purchase. Since this is difficult to enforce, it’s not surprising that most buyers do not fulfill this duty for every online, out-of-state purchase; The new bill wants to address this problem by asking retailers to aid in the tax collection process.

In addition, The Marketplace Fairness Act wants to eliminate the obvious advantage that Ecommerce businesses with no state presence have over streetside in-state retailers. If a consumer buys an item for 1 dollar at a shop, the shop will charge whatever the state sales tax is (maybe 5 percent), ending up with a total of $1.05. Contrastly, if he or she purchases the same item for a dollar from an e-commerce seller with absolutely no relation with the consumer’s state, and does not self-report the particular use tax, he or she has basically paid a reduced price for the good. Brick-and-mortar stores (understandably) think that this puts them at an unfair disadvantage, especially considering that they frequently provide more tax revenue, employment and capital investment for their state than do e-commerce, out-of-state stores.

Both Growing companies and Ecommerce businesses, alike, are staunchly opposed The Marketplace Fairness Act. Although the The Marketplace Fairness Act requires the provision of free software software to companies in order to help them collect the mandated sales taxes, most small companies object that such software will necessarily be compatible with their current organizational systems. Additionally, despite the fact that MFA will not apply to companies with annual revenues below one million, lots of small companies with modest profit margins may wind up getting hit with compliance costs that exceed than the taxable income generated by their collections. Perhaps most importantly, the bills opponents emphasize that a small business which ships to 30 states could be subject to an expensive and cumbersome sales tax audit in each of those 30 states. Although MFA will make state simplify their taxing tendencies, it does not explicitly clarify the concern that plenty of businesses have about simultaneously being subjected to more than one sales tax audits. Finally, several trade groups, like the American Society of Pension Professionals and Actuaries, have suggested that the bill’s broad language could be interpreted as authorizing states to cover myriad purchases not currently taken into consideration in the current draft of the The Marketplace Fairness Act – this could even mean employee savings in retirement and 401(k) plans.

Frank Stafford graduated from SMU with a degree in business, and now uses his writing talents to share practical business news with people across the web. He typically writes about tax policy both in the U.S. and overseas, and currently writes for Dallas tax attorney Joe B. Garza.

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