In preparation for the upcoming legislative session multiple bills have been drafted that seek to change current tax laws requiring all eCommerce businesses to collect tax at the point of purchase in the United States.
Currently online businesses without a physical nexus in a state do not have to charge sales or use tax to consumers from these states, but for several years brick-and-mortar retailers have argued that this practice is unfair while many states have been considering online sales tax as new source of revenue. Already there are three bills that will be considered in 2013 that aim to redefine tax laws to include electronic and interstate commerce.
The Main Street Fairness Act would permit states to impose sales tax on eCommerce businesses for interstate transactions, but only states adhering to the Streamlined Sales and Use Tax Agreement (SSUTA) would be able to do so. The SSUTA is a multistate tax compact which requires member states to adopt uniform rules and administrative provisions for sales tax collection and reporting. The requirement for being part of the SSUTA is important as it acknowledges the complexity of tax laws which differ from state-to-state, requiring some continuity and simplification for eCommerce taxation across the nation. However, more than half of states are not members including the six largest states by population. Complying with and joining the SSUTA compact can require a state to make changes to their current tax procedures which is likely why most have not done so yet, although increased tax revenue from eCommerce sales could provide enough incentive.
Another proposed bill first introduced in 2011, the Marketplace Fairness Act, would give SSUTA participating states the authority to require eCommerce businesses to collect and remit sales tax and will be voted on by the Senate next year. Similar to the Main Street Fairness Act, states not adhering to the standardized tax guidelines would only be able to require sales tax collection by eCommerce companies with a physical nexus in their state. A separate bill to be considered by the House of Representatives is the Marketplace Equity Act which would give all states this authority, even if they don’t participate in the Streamlined Sales and Use Tax Agreement. This proposed bill would only apply to online businesses with more than $100,000 in remote sales in the state or with more than $1 million in remote sales across the U.S. but also requires a more uniform tax base throughout the state, which could be an issue for the many states with sales tax rates that differ by county or even municipality.
As the legislative sessions deliberate in 2013 online retailers will need to keep a watch on these three bills as any one of them would have major effects on eCommece if enacted. Consumers may find online shopping less of a bargain or less appealing if tax is always charged. Many merchants who charge tax in one or a handful of states today may need to consider how their tax calculating, collecting, reporting and remitting requirements could become much more complicated. Additionally, states may have to decide whether to make changes to their tax regulations to ensure they can collect all eCommerce tax revenues.
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