Has the Wayfair decision left you scratching your head? You’re not alone. Earlier this summer, the U.S. Supreme Court’s landmark South Dakota vs. Wayfair decision reversed the dated “physical presence” rule. States are now allowed to require online sellers to…
In the past, we have documented online sales tax in the United States and the three tax Acts which were currently in the Senate, one being the Marketplace Fairness Act. Last week, the U.S. senate voted 75-24 in favor of a non-binding resolution for an amendment to support the Marketplace Fairness Act in its 2014 budget plan. In doing so, the United States has taken another step towards taxing eCommerce transactions.
What do you need to know about the Marketplace Fairness Act? We answer a few questions on the topic below…
What exactly is the Marketplace Fairness Act?
The Marketplace Fairness Act is an online sales tax bill which would allow all states who participate to collect sales tax from eCommerce transactions that take place online. The main purpose of the Act is to create a “fair” playing field for all retail transactions by taxing all purchases regardless of the purchasing channel.
Under the Act, each state has the choice to set up their own tax requirements or they can partner with other states to create specific tax criteria which would apply to all of the states who collaborated on the effort. Businesses with revenue of $1,000,000 or less in total annual out-of-state sales would be exempt from the Marketplace Fairness Act, meaning the main target of the Act is larger eCommerce companies.
The online sales tax situation in the United States is a big concern for online retailers and can be a difficult topic to understand. A recent study from Stamford University indicated that a national online sales tax could decrease online purchase volumes by an average of 12% across all channels (although this could be financially negated by the upward trend in increased average order values). The addition of this tax would be a unique and challenging obstacle for all online retailers in the country.
Another unique aspect about online sales tax in the U.S. is that each state has different laws (or lack thereof) on whether it collects online sales tax and how it collects the tax. For example, last month Pennsylvania announced they will begin taxing online sales for companies with a physical presence in the state. As state laws currently stand, only online retailers with a physical eCommerce presence (i.e. distribution center) in a state can be subject to online sales taxes from that state, meaning online retailers do not have to pay an online sales tax in states where they do not reside.
Currently there are three online sales tax bills Congress is considering, each very unique in their own way yet with some similarities: