Internet Sales Tax

In May 2013, the US Senate passed the Marketplace Fairness Act which would require online retailers to collect sales tax for the states to which they ship goods.  The act has to be passed by the House before it becomes law.   The discussion is quite heated.  When it will be passed or if it will be passed is difficult to call.

The issues…

As online commerce grew, shoppers often did not pay sales tax.  Online retailers were required to collect taxes only in those states where they had a physical presence: a retail store, a distribution center (brick & mortar).  It wasn't that sales tax wasn't due, but that it was too complicated to collect. States, counties, and other municipalities have varying rates and tax different items.  Keeping track of all the tax details was considered a burden for businesses. Most states require shoppers to keep track of online purchases and report and pay sales tax through their state income tax filings. Many taxpayers are either not aware of this requirement or choose to ignore it.  Online commerce has grown exponentially.  Uncollected sales tax is estimated to be in the tens of billions of dollars; revenue sorely needed by the states.

The Senate version…

The Marketplace Fairness Act requires the collection of sales and use tax by every seller with annual gross receipts of one million dollars or more.  To participate, each state must provide software so the seller can calculate the tax required.  The state must also establish a single state office to receive the funds.  Some states are working together already to provide a collection authority with which businesses may interact.

The supporters…

Large retailers, like Target, small brick & mortar businesses, the National Retail Federation, President Obama and a mix of Democrats and Republicans support the bill.  Supporters say it is not a new tax, just a more efficient and effective way to collect a tax that is due.  They argue that the current system encourages shoppers to find products in a physical store then order the same product online to avoid sales tax. Requiring sales tax collection would level the playing field for online and physical stores, removing an unfair advantage for online only sellers.

Those against…

E-Bay along with Conservatives and anti-tax activists argue that the burden of collection could hurt many businesses.  Additionally, there would still be no “fairness” since physical stores tax based on where the sale occurs, while online sellers would have to tax based on where the item is shipped.  If the law proceeds, those against would like the gross receipt amount for exemption be raised significantly.

What happens next…

The bill passed by the Senate is currently in the Judiciary Committee in the House of Representatives.  The bill will have to pass committee and then be presented to the members of the House for a vote.  Meanwhile, supporters and opponents continue to actively voice their opinions. 

Sandra G. Johnson, CPA
Sandra G. Johnson, CPA, P.C.
206 Pettit Avenue
Bellmore, NY 11710
516-409-1120
sjohnson@sgjcpa.com