Recently, our blog introduced the Marketplace Fairness Act and explained that it is a piece of proposed legislation currently being considered by Congress. In our first blog post, we dove right into the basics associated with the Marketplace Fairness Act, and today we continue uncovering more on the topic by introducing both pros and cons of the controversial act.
As a refresher, The Marketplace Fairness Act as currently proposed (but not yet passed) would allow states to enforce the collection of sales tax from remote vendors selling into their state, whether or not the retailer has nexus (taxable presence). Remote vendors include online and catalog focused sellers like Amazon and Ebay or “Mom & Pop” Internet retailers.
How Will The Marketplace Fairness Act Help & Hurt?
In our opinion, the Marketplace Fairness Act helps all of the following:
Larger Online Retailers: New legislation brings a whole new set of standards that must be abided by. It’s no secret that larger corporations have greater monetary resources at their disposal, and in the case of the Marketplace Fairness Act, it gives them an advantage. Their expertise and funding ability to hire specialty team members to assure the proper processes are being followed will likely create an ease of transition for large corporations, while small online businesses may struggle to adapt to the proposed compliance requirements. As the law is currently proposed, retailers with less than $1Million in online sales would not be required to collect and remit sales tax. However, in our opinion, that threshold is too low, and should be increased if the Marketplace Fairness Act hopes to pass. Advantage: Large retailers from a competitive standpoint, but the compliance could still be burdensome.
Governments: The benefits of increased state tax revenues to state governments is the crux of the proposed legislation in the first place. State legislatures and governors that support the adoption of the Marketplace Fairness Act are poised to benefit through the additional funding that will be made available as a result of collecting the billions of dollars that are currently going uncollected. Advantage: State Governments…totally!
Small Brick & Mortar Business: Online retailers that offer the same products as small brick and mortar shops have seemingly benefitted from not being required to collect and remit sales taxes heretofore. . The Marketplace Fairness Act would change the way these businesses compete with one another by enforcing the same sales tax on both online and brick and mortar retailers. Advantage: Brick & Mortar businesses.
While there are plenty of predictions, the potential benefits and pitfalls of the Marketplace Fairness Act are dependent upon various individual business factors, and which side of the fence your company straddles. If you believe that the Marketplace Fairness Act could affect you (and honestly, it’ll impact almost everyone!), we urge you to contact Labhart Miles; we are equipped to help you gain a better understanding of the potential changes.
Please continue to follow our blog for updates on the Marketplace Fairness Act, when we’ll discuss alternatives currently being considered in Congress.
Labhart Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, credits and incentives maximization, income tax and sales/use tax planning and other special projects. We also specialize in maximizing the California enterprise zone program tax credits for clients. To learn more, contact us today at www.LabhartMiles.com
