Yesterday, the Senate passed the Marketplace Fairness Act (“MFA”) by a vote of 69-27. The MFA compels online and catalog retailers ("remote sellers"), no matter where they are located, to collect sales tax at the time of a transaction and remit to states where the customer resides. States are only granted the authority to collect these taxes after they have simplified their sales tax laws.
This legislation (S. 743) now moves to the House, where its fate is less certain. The MFA took an unusual route to passage in the Senate. Typically, it would have to be reported out of the Senate Finance Committee; however, Chairman Baucus did not support the bill, and used his authority to prevent a committee vote, stalling action on the bill. However, a group of Senate supporters, led by Sen. Dick Durbin (D-IL), convinced Senate Majority Leader Harry Reid to take the legislation directly to the floor, where it easily passed.
Generally, the MFA is supported by the major “big box” stores (which are already reporting sales tax collections to the states), as well as the states (which seek additional tax revenues). The opposition is led by eBay (which cites the additional tax compliance requirements imposed on sellers using the eBay platform), as well as the states that have no state sales tax (the bill would require all sellers – including those in non-sales tax states – to collect sales taxes for the states where their customers reside).
In the House, the identical MFA bill (H.R. 684) is under the jurisdiction of the House Judiciary Committee, where Committee Chairman Bob Goodlatte has indicated concerns about the legislation. Also, while the legislation allows states to collect an existing tax from businesses, as opposed to consumers, some groups are lobbying that the MFA constitutes a new tax, and this message is gaining traction among anti-tax House members.
Our concern with the MFA lies in the new compliance burden it would impose on small businesses. While the MFA does contain a “small seller” exemption for businesses that have $1 million or less in remote sales, we believe the exemption should focus on the size of the business. Instead of a “small seller” exemption, the legislation should provide a “small business” exemption, because small businesses are less capable of bearing the incremental costs of new tax compliance burdens.
Our recommendation would be to adopt the approach set out in a Draft Interim Report, dated December 8, 2008, prepared by the Small Seller and Vendor Task Force of the the Streamlined Sales Tax Governing Board. Under that report, a business would be exempted from sales tax collections for foreign states if it had national sales of less than $5 million; also a business with $5 million or more in revenue would be exempted if that business had less than $100,000 in remote sales. We believe the exemption should focus on the size of the business, and not the volume of interstate sales.
We urge the House to protect SMB IT businesses by adopting an MFA small business exemption consistent with that set out in the 2008 report to the Streamlined Sales Tax Governing Board.
