Death and taxes are two guarantees in life. Regarding the latter, which make for contentious debates, eventual tax laws that began as simple ideas have a critical window of opportunity to survive or fail when discussed amongst lawmakers. Not taking potential tax laws for granted, Julian Currie, Minnesota School of Business-Rochester (MSB) accounting program chair, lends his insight into a sales tax proposal garnering strong debate on a national level.
The Legislature is in the process of examining the feasibility of passing a new law called the Marketplace Fairness Act. This law will impose a sales tax on consumers purchasing merchandise via the internet and place the responsibility of collection of the state mandated tax of the state the buyer resides in on the selling company.
The bill authorizes each member state under the Streamlined Sales and Use Tax Agreement, the multi-state agreement for the administration and collection of sales and use taxes adopted on Nov. 12, 2002, to require all sellers not qualifying for a small-seller exception (which is applicable to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the agreement, but only if the agreement includes minimum simplification requirements relating to the administration of the tax, audits, and streamlined filing.
The Senate has already agreed to pass the law and it currently rests in the hands of the House of Representatives. If this bill is passed into law, this will place a huge burden on business merchants with a large volume of internet sales, as they will have to comply with each individual State Sales Tax Laws. This bill will also negatively impact the consumer as they will experience a significant hike in pricing of online merchandise.
In an Accounting Today article, Carla Yrjanson, vice president of tax research and content for indirect tax at Thomson Reuters, said, “I think the best thing for businesses to do is really start the preparation and get ready for this, should it pass the House and become law. There are several key things that businesses can do to get ahead of the game on this. The first one is to determine the tax exposure that the particular business will have should this law go into effect. How much is at risk and how much is it going to impact the business?”
The Marketplace Fairness Act would also apply to sales of digital goods such as eBooks and MP3 music files in the states that already tax them. “For digital goods, the Marketplace Fairness Act doesn’t really impact it or change it, except what will happen is with the Marketplace Fairness Act there will be more sellers, so remote sellers will then need to look at the particular laws in those states to determine whether the state is taxing electronic or digital goods, or not taxing electronic or digital goods,” Yrjanson explained. “Each state makes a determination on whether they’re choosing to tax eBooks, MP3s and those sorts of things. So the Marketplace Fairness Act means more of the sellers of digital goods will be subject to making the determination in each state whether the state will tax it or not tax it.”
The law currently exempts online businesses with less than $1 million in annual U.S. remote sales, although businesses like eBay would like to see that threshold raised.
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