As the Marketplace Fairness Act of 2013 (MFA) makes its way through Congress, it’s no surprise that businesses across the country are trying to figure out what it means to them.
If passed, this legislation would grant states the authority to require certain non-exempt remote sellers to collect sales tax, if states adopt specific measures to simplify sales and use tax administration.
The MFA would not override current state and local statutes surrounding product and service taxability, tax holidays, exemptions, or related rates, boundaries and rules. Existing nexus laws would not change due to this legislation.
The stated purpose of the MFA is “To restore the States’ sovereign rights to enforce State and local sales and use tax laws…”
The bill, as currently written,1 would authorize states to require remote sellers to collect and remit sales tax in accordance with state and local laws, as long as those states are in full compliance with the Streamlined Sales & Use Tax Agreement, or a member of the Streamlined Sales Tax (SST) organization, or implement a minimum set of simplification measures.
Streamlined Sales Tax Member States
According to the legislation, “Each member state under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception…to collect and remit sales and use taxes with respect to remote sales sourced to that Member State…” There are currently 22 full member states that comply with the following:
- State level administration of sales and use tax collections.
- Uniformity in the state and local tax bases.
- Uniformity of major tax base definitions.
- Central, electronic registration system for all member states.
- Simplification of state and local tax rates.
- Uniform sourcing rules for all taxable transactions.
- Simplified administration of exemptions.
- Simplified tax returns.
- Simplification of tax remittances.
- Protection of consumer privacy.
Non-SST states
For states not members of the SST,2 the minimum simplification measures they must implement prior to exercising the authority that MFA would grant, include: include:
- A single entity within the State responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the states.
- A single audit of a remote seller for all state and local taxing jurisdictions.
- A single sales and use tax return to be used by remote sellers.
- A uniform sales and use tax base.
- All interstate sales should comply with destination-based sourcing rules.
- Make available information regarding taxability of products and services including any applicable exemptions.
- Make available software that calculates and applies correct tax rates must be made available to all remote sellers.
Once an SST member state publishes notice of its intent to enact the authority granted by MFA, it can exercise that authority 180 days later (but no sooner than 180 days after MFA passes). States that meet the minimum simplification requirements would have to pass legislation that enacts the authority granted by MFA then wait at least 6 months before gaining the authority.
What is the bottom line for businesses?
If the bill becomes law, Remote sellers could have the added obligation of meeting sales and use tax collection and remittance requirements in states where they currently don’t have to collect (minus the four that don’t have sales tax).
This is a guest blog post by Avalara.
1 Please note: specifics of this legislation (such as small seller exception and implementation timeline) are subject to change. This information is current as of May 7, 2013
2 Including tribal organizations, District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and any other territory or possession of the United States.
