Main Street vs. the Internet – The Sales Tax Showdown Is Here
Guest blog provided by the sales tax experts at Avalara
On May 6, the Senate passed the Marketplace Fairness Act by a vote of 69-27, and it will now go to the House for approval. Retailers are divided on issue, but whether you’re for it or against it, chances are it will affect your business one way or another if enacted.
If passed, states will be given authority to require out-of-state or “remote” sellers to collect sales tax on sales made in that state, regardless of whether the seller has a physical presence or “nexus”.
The proposed bill could result in a major increase in the number of retail businesses who are required to collect sales tax, and it’s not just online retailers who will feel the impact. Vendors who sell via catalog and over the phone will also see changes in their out-of-state compliance requirements.
We’ve seen a preview of this with the so-called Amazon Laws, where certain states have passed legislation to compel Amazon to collect state sales tax. Variations on Amazon Tax laws include “affiliate nexus”, where you must collect and remit tax if you maintain certain affiliate relations in the state, and “click-through nexus”, where you must collect and remit tax if you generate a certain amount of revenue via online referrals.
It seems the states, many of which are facing budget shortfalls, are determined to get their piece of the pie on all purchases made within their boundaries one way or another. Raising taxes is not typically a popular decision, but making sure you collect every penny of what you’re allowed can have the same effect without the negative political implications. Hiring more auditors and expanding nexus laws to allow taxation of more transactions are two common strategies states are employing to maximize collections.
Proponents claim the Marketplace Fairness Act will level the playing field for brick-and-mortar retailers, who have argued that online merchants have an unfair advantage by not having to charge sales tax. But many online retailers claim that the burden of having to keep up with the 11,000+ tax jurisdictions in order to accurately calculate the tax rates would be a major hindrance.
While it seems an unlikely ally, Amazon has actually expressed support for the act. Some theorize that they hope that any upstart competitors will have a difficult time complying with the new requirements. Others believe that they plan to open warehouses in most states and offer same day and/or expedited delivery.
One thing’s for sure, though, times are changing, and all retailers need to work out a plan to stay competitive and compliant in the new sales tax frontier.
For a historical perspective on sales tax legislation and tips to prepare yourself for the changes, download our free whitepaper: Sales Tax Legislation Beyond Ecommerce - What every retail business needs to know, whether you engage in Ecommerce or not.
You can also watch a recording of a webinar recently hosted by our partners, Avalara, that discusses the legislation: Main Street vs. the Internet – How Online Sales Tax Affects Every Business.