Anna Howell, State and Local Tax (SALT) expert and segment leader in the Memphis office of CBIZ MHM, weighs in on the highly anticipated Marketplace Fairness Act and what it means for online shoppers.
A significant piece to the proposed Marketplace Fairness Act, or S. 743, is Section 2(c) also known as the 'Small Seller Exception.' As we discussed in our last blog post on the topic, "Marketplace Fairness Act Gains Momentum - Part 1," the legislation requires all “remote sellers” (including online stores) earning $1 million in revenue or more to collect taxes for every state and jurisdiction where they have customers. Moreover, the Small Seller Exception exempts remote sellers who earn less than $1 million in out-of-state sales. This rule may be just a small note included in one of the six sections of the act, however it arguably has created the most discussion among small to mid-size business owners.
Who qualifies for the 'Small Seller Exception'?
According to Section 2(c), remote sellers that have less than $1 million in gross annual receipts from remote sales will qualify under the 'Small Seller Exception.' Independent vendors who use third-party sites, such as Etsy or Amazon, may view the cut-off of $1 million 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.
How does a state choose their 'certified' software provider and do businesses have any say in the matter?
Every state will be required 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 5 software providers are 'certified' to provide such a program. Those 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. One issue is that the software each state chooses will not be subject to a list of requirements, therefore creating multiple forms of software that collect tax. The lack of uniformity could become a logistical problem for small businesses if each state differs in their process of collection.
If the law is passed, how much time separates enactment and enforcement?
If the bill is passed by the House and later becomes law, each state under the SSUTA will have to let their citizens know that it is going to begin enforcing this collection process. The state then must wait 180 days and start collection on the first day of the financial quarter. If a state is not listed under the SSUTA, it must provide legislation which meets all five mandate requirements under the second option of the act and begin enforcing this act after the 180 day period on the first day of the financial quarter.
What are some of the revisions being discussed?
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. 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.