The Online Sales Tax Bill and Major Players

The Marketplace Fairness Act was written in an attempt to make it easier for states to collect taxes from out-of-state online retailers. At the moment, online retailers need to collect state sales tax for online sales from in-state customers only. On May 6, 2013, the Marketplace Fairness Act passed a Senate vote and traveled on to the House for further consideration. As it did so, the bill prompted an outpouring of opinion from parties on both sides of the online tax debate. Perhaps you support the sales tax for online sales bill; maybe you oppose it. Either way, your role in the industry has no doubt led to your familiarity with the potential impact of the proposed new law.

Technically, local sales tax for online sales is already due. In practice, however, this rule is rarely enforced because of a "physical presence" ruling made by the Supreme Court in 1992. This edict declared that only retailers with a physical in-state presence—a brick-and-mortar store, for example—would be required to charge their customers local sales taxes. According to a recent study, localities and states lose approximately $11 billion in annual tax revenues because of the 1992 judgment.

Like many hot-button issues, the Marketplace Fairness Act has seen its share of opposition. Industry pundits have engaged in vigorous debate about the measure since its introduction; some have welcomed the prospective new law, while others have vilified the potential change. Certain big businesses—eBay, for example—have asserted their disagreement with the Internet sales tax bill because of its possible impact on sales. At the moment, many consumers choose to shop on eBay because sales taxes are not applied to consumers' out-of-state purchases.

Despite its online nature, Amazon, on the other hand, has remained an outspoken advocate of the proposed measure since the bill's inception. In fact, the Amazon Corporation has urged the collection of sales tax for online sales transactions for a number of years. Several states have already tried to enforce so-called "Amazon laws" in an attempt to collect taxes; however, they have been largely overturned in court on constitutional grounds.

As a professional in the sales arena, you may already be acquainted with the basic premise of the Internet sales tax bill. However, you may be unaware of the following key provisions in the nine-page Marketplace Fairness Act (MFA):

• The MFA has no bearing on a state's definition of a business' physical presence, or "nexus."
• The bill will not be mandatory: states can choose to adopt it or not.
• If it is made law, the MFA will require states that opt in to simplify and streamline their tax-collection processes.
• In addition to the above, states that choose to adopt the new law will be required to provide out-of-state businesses with free software to help them calculate sales tax for online sales.

Major players in the MFA debate include eBay and Amazon, who, surprisingly enough, are on opposite sides of the argument. Recent opinion polls suggest that consumers plan to cut back on their Internet purchases if they are forced to pay sales tax for online sales; however, the true impact of the bill will probably not be seen until well after its legal adoption. After all, consumer spending habits don't tend to change overnight and the sheer convenience of Internet commerce­—state sales tax or not—will likely remain unmatched.

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