Tax Analysts Blog

Leveling the Playing Field

Posted on Feb 20, 2013

A bi-partisan group of U.S. Senators and Representatives introduced on February 14 a bill that reportedly resolves the differences between bills introduced in the last Congress that would require an online retailer to collect and remit sales tax regardless of whether the online retailer has a physical presence in the taxing state. There were a host of reasons none of the bills moved (including the focus late in the year on that pesky fiscal cliff). Still, significant traction was gained, and it was expected that a new bill would be introduced in 2013.

So here we have it. The new bill, entitled the Marketplace Fairness Act of 2013, would give states the option to require out-of-state online retailers to collect sales and use taxes if they adopt the Streamlined Sales and Use Tax Agreement or they adopt specific simplification requirements provided for in the bill. The legislation would also prohibit states from requiring remote sellers with less than $1 million in annual remote sales to collect sales and use tax.

I generally think there is a need for this legislation. States are unable (or perhaps unwilling) to enforce use tax collection and state laws permitting state taxing authorities to require out-of-state vendors to collect and remit sales tax are arguably unconstitutional.

But I have to wonder about the small seller exception. It will undoubtedly be a source of debate with the new bill. Yet, it seems accepted that a small seller exception is needed to protect small businesses from the burdens of compliance. So the debate will likely focus on whether the level for the exception is high enough or too high, not whether it should be included at all.

But is there really a need for a small seller exception? I have spoken with a few small online retail businesses and there is a concern about sales tax compliance in the more than 9000 taxing jurisdictions across the nation. I sympathize with those retailers. I think most of the very small businesses simply want to comply with federal and state tax laws. They aren’t engaging in aggressive tax planning; they are just trying to keep up.

But the Marketplace Fairness Act of 2013 purports to require simplification before states can burden retailers with sales tax collection and remittance requirements (whether it achieves simplification is a debate for another day). So if simplification is required and the goal of the legislation is to level the playing field, then why provide any exception at all? Why not let all sellers, regardless of their size, compete on the same level?

Read Comments (4)

The VAT BastardFeb 20, 2013

Nice post. I'm not sold on the $1 million threshold. Seems overly generous.

Separately, what is wrong with this statement: There are 9,000 distinct sales
tax jurisdictions across the country? I will tell you what's wrong with it.
That's 8,999 too many. Talk about an unnecessary compliance burden on the
merchant class.

Someday we will jettison the archaic and dysfunctional retail sales tax in
favor of a federally harmonized broad-based consumption tax. It will apply to
services as well as goods. It will relieve business inputs. It will also pay
the darn bills.

All roads lead to VAT, as 150+ other countries have already discovered.

von gneisenauFeb 21, 2013

are 9,000 distinct sales
tax jurisdictions across the country? I will tell you what's wrong with it.
That's 8,999 too many.

That's true. It is also true that there are about 50 state legislatures too
many - but we are where we are.

Cara Griffith's picturecara griffithFeb 21, 2013

I would agree on the sales tax jurisdictions. It's overwhelming, particularly
given the fact that businesses, even the small ones, operate on a multistate
level and most are no longer selling widgets.

That said, I'm a believer in our system of federalism, so I'll have to defend
the 50 state legislatures.

von gneisenauFeb 23, 2013

Our federalist system is obsolete and the quality of our state legislatures and
executives (not to mention judiciaries) is I would say, (due to my inability to
combine appropriate politeness with accuracy), "woeful" - even worse than the
IRS (does that break some physical law?).

States did make sense when there was little duplication but now liberals have
elavated the commerce clause to such a farcically high level that, were they
honest, they would also abolish the states. Except of course, that would mean
jobs going away...

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