The Marketplace Fairness Act: The Tax Man Cometh & He’s Heading for the Internet

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Whether your brick-and-mortar business sells goods online or you are solely an Internet retailer, you must get up to speed on the Marketplace Fairness Act – a piece of legislation which passed the Senate in early May and is currently under hot debate in the House of Representatives. It requires all “remote sellers”, including online stores, earning $1 million in revenue or more to collect taxes for every state where they have customers.

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The Marketplace Fairness Act: The Tax Man Cometh & He’s Heading for the Internet

  1. 1. I D E A S T O H E L P G R O W Y O U R B U S I N E S S ©Copyright2013.CBIZ,Inc.NYSEListed:CBZ.Allrightsreserved. W hether your brick-and-mortar business sells goods online or you are solely an Internet retailer, you must get up to speed on the Marketplace Fairness Act – a piece of legislation which passed the Senate in early May and is currently under hot debate in the House of Representatives. It requires all “remote sellers”, including online stores, earning $1 million in revenue or more to collect taxes for every state where they have customers. If the Marketplace Fairness Act becomes law it will mean thousands of dollars in new revenue for each state because they will now be collecting sales tax from Internet shoppers who once avoided the additional fee by ordering online. The bill would force online shoppers to pay sales tax for the state to which they are having their items shipped. Currently, most online shoppers are subject to a self-reported Use Tax, which is typically the same rate of tax. The new law will require every state to provide remote sellers with free software that calculates all taxes due. Under the Streamlined Sales and Use Tax Agreement (SSUTA), adopted by a total of 24 states, only five software providers are ‘certified’ to provide such a program. States that choose not to join the SSUTA will be provided an alternative process within the act. This option will contain five mandates which must be followed and implemented into the state’s tax plan before enforcement of the law. Additionally, these states as well as those listed under the SSUTA must wait a period of 180 days before collection, starting the first day of the financial quarter after enactment. The Small Seller Exception As we await a final decision from the House on the Marketplace Fairness Act, or S. 743, it is important to understand its significance for employers as well as individuals. A noteworthy piece to the legislation is Section 2(c) also known as the “Small Seller Exception”, exempting remote sellers who earn less than $1 million in gross annual receipts. Independent vendors who use third-party sites, such as Etsy or Amazon, may view the $1 million cut-off negatively because in order to use these sites they must pay transaction fees. Right now these fees are not being incorporated in the annual calculation. Revisions Several lawmakers and companies have publicly voiced their opinion on the Marketplace Fairness Act. Some discussions around the act include making revisions to the current law before any further action is taken. The Small Seller Exception may be just a small note included in one of the six sections of the act; however, it arguably has created the most debate among small- to mid-size business owners. One major concern is the administrative burden this tax would place on small businesses. Opponents to this rule, including eBay, argue that the exemption level is too low and propose $10 million should be the cut-off value. If you’re an online business, based on your state’s membership in the SSUTA, your future tax collection process is dependent on the Marketplace Fairness Act. Though much is left up to debate, including several revisions that could affect its enforcement, the time to prepare for a change in sales tax law is now. If passed in its current state, you must be prepared to take action in as little as six months to meet these new filing requirements. Connect with a tax professional now to prepare properly. our business is growing yours Tax & Accounting The Marketplace Fairness Act: The Tax Man Cometh & He’s Heading for the Internet Article reprinted from Fall 2013GROWTHBIZS T R A T E G I E S ANNA HOWELL CBIZ MHM, LLC • Memphis, TN 901.685.5575 • ahowell@cbiz.com

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