After many years of practicing in the multi-state tax world, it’s interesting to me to finally find the topic of sales tax in the mainstream media almost daily. There is considerable buzz about a proposed new federal law to require retailers selling goods over the internet to collect sales tax. Various versions of this law have emerged in the last several years under the monikers “Mainstreet Fairness Act” and “Marketplace Fairness Act”. The latter has recently come into the limelight as the US Senate has voted (May 6, 2013) to approve a law which would significantly impact internet retailers – requiring those with sales of over $1Million to collect and remit sales tax from their purchasers, whether or not the company has nexus (taxable presence) in the state of the purchaser. The proposed law has currently stalled in the US House of Representatives.
Sales Tax 101 – Where is Main Street?
Many people are referring to this as the “Internet Sales Tax”, but it’s really not a new tax at all – it’s just shifting the burden of who collects and remits the tax. Sales tax has a complementary “use” tax. The way it stands now (before the passage of the law), if you are an individual and purchase something online and are not charged sales tax, you as the individual are still liable for the use tax (at the same rate) on that purchase. Most states allow you to declare and pay that on your individual income tax return. So, the tax is already due. Most people just don’t pay it. What this law attempts to do is to require the seller to collect and remit the tax so that the states get the money that should have been collected from the purchaser. In theory, it’s easier to collect from one seller than from thousands of consumers. So, again, this is not a proposed new tax – the tax has always been due. This proposed law changes the burden of collection to the seller rather than the purchaser.
There are several reasons why, as either sellers of products or consumers of products, we should care about this proposed law. Here are a few:
1. The US Congress, which has the right to regulate sales in interstate commerce (a seller in one state and a buyer in the other) has not acted on that right since the 1950’s. The internet became mainstream in the 1990’s, increasing interstate commerce, and now Congress is finally taking a look. Why?
2. We will all be impacted in some way. Whether we are companies on the collection side, or consumers, we will feel some “pain”.
3. Many large companies are supporters of this legislation, including both “brick and mortar” stores and internet retailers. Yet the law is likely to impact smaller retailers the most. Should we be concerned about that?
4. The minimum threshold for compliance (currently at $1Million in revenue) seems like big number. But for retailers, is it big enough to support the tax compliance burden that will accompany reaching that threshold?
5. The law currently promises a streamlined approach to filing, offering companies a “one-stop” type approach and software that will assist with compliance. Do we really believe the additional bureaucracy plus software offers anyone the illusion of “streamlined”?
Stay tuned as we explore some of the nuances of the proposed law and how it is likely to affect all of us that buy (or sell) over the Internet.
About the Author:
Monika Miles is the founder of the Labhart Miles Consulting Group. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.
Monika has served as a speaker for various organizations, including local CPA groups, the Accounting & Financial Women’s Alliance (AFWA), Financial Women’s Association – San Francisco, Lorman Group, and San Jose State University. Her professional affiliations include the AICPA, Texas Society of CPAs, the National Association of Women Business Owners, and Accounting & Financial Women’s Alliance, where she has served as National President (2011-2012). She also contributes to state tax publications such as The Journal of Multistate Taxation and Incentives and has contributed to ASWA’s “Accountability” e-magazine.