On May 6th, the United States Senate passed the MFA with overwhelming support. The Marketplace Fairness Act also known as the “Internet Sales Tax” is a bill that will soon be before the U.S House of Representatives. The MFA will require e-commerce retailers selling over $1 million per year in states they do not have a physical presence to collect sales tax and pay taxes to each customer’s state and local government.
The MFA has been met with both support and criticism. The lack of an Internet Sales Tax is estimated to cost state governments an estimated $11 billion loss in tax revenue. Brick and mortar stores who do pay state taxes say that it gives e-commerce sites an unfair advantage when it comes to offering lower costs. It is not surprising that most consumers and online retailers are not happy with the MFA. The MFA will likely make shopping online more expensive. A recent study shows that 61% of respondents disagreed with the bill and 60% said they would change their online shopping acts if it ever becomes a law.
So what does this mean for your online business?
First off, this MFA is not a law yet and may never become one. In the meantime here are the important things to remember if it does.
- Online retailers making more than $1 million in revenue will be affected. Retailers who bring in less will see no change to how the collect money.
- Collecting tax is simple for brick and mortar store because they follow the tax rules where their store is located. If the MFA is passed online stores will have to collect taxes based on where their customer is located. Since each government has their own unique rates and rules it will be quite difficult to manage this and implement this. Tax rules would need to be considered for more than 9,600 different tax-collecting jurisdictions, if including state and local governments.
- The MFA requires states to offer free tax collection software to online retailers.
- The MFA requires that states must simplify tax collection. This change came after online retailers stated that brick and mortar stores would now have an unfair advantage since they had to collect taxes in only one jurisdiction while online retailers would have to collect it many.
- It is not mandatory for states to implement the MFA. Because of increased tax revenue it is unlikely states will choose to not implement it.
As of right now there is no date set for the Marketplace Fairness Act to go to the House of Representatives where it is less popular. If the MFA passes the House it will move on to the Presidents’ desk for final approval. The President has shown support for the bill.