The National Retail Federation will continue to push hard for the new Congress to pass a long-debated measure that would require online retailers and remote sellers to collect sales taxes in all states where they sell, regardless of whether they have a physical presence there.
The retailers think the Marketplace Fairness Act would level the playing field between Main Street brick-and-mortar stores and those that operate in cyberspace. If this particular bill (or another similar piece of legislation) ever passes, it would have huge impact on certain businesses in Tennessee who sell out of state.
While the law is mainly directed to online retailers, it applies to any business with remote sales. In other words, the sales don’t have to be made through a website or online. For example, assume a company markets to customers through trade shows, telephone solicitation, catalogs and advertising in trade journals. Their retail sales outside of Tennessee would be taxable. Another example would be a jeweler in Tennessee who sells to customers outside the state.
Wholesale sales are exempt, but the seller is required to collect a resale exemption certificate from the buyer. One other hidden item is that some states tax services that are not taxable in Tennessee. For example, Ohio taxes “automatic data processing, computer services and information services.” If a Tennessee company provides these services to customers in Ohio, the Tennessee company would have to start collecting Ohio sales taxes.
Much is at stake, and before Congressman John Boehner vowed to block the bill late last year, it seemed 2014 presented the best opportunity for passage. The bill easily passed the U.S. Senate in a bipartisan vote the prior year and is supported by Tennessee Senator Lamar Alexander. Some lawmakers hoped to tie its passage to the extension of the Internet Tax Freedom Act, which was eventually extended but did not include the Marketplace Fairness Act.
Regardless of what happened last year, the dynamics seem to point to eventual change. Beyond the lobbying of the retail federation, several states have pushed Congress to adopt the act, eager to bolster their coffers with new sales tax revenues. The National Conference of State Legislatures estimates that Tennessee lost $748 million in 2012 in uncollected sales tax from online sales of remote retailers; nationally, the estimate was $23 billion.
What should businesses be doing?
The bill in its current form would require significant changes for those sellers who have more than $1 million in remote sales (the current threshold in the bill that triggers collection requirements).
With more than 3,000 different tax rates in states, cities and counties, including different rates on different items, across the country, businesses would have to adopt new systems to accurately collect and remit taxes.
Some businesses have begun to talk with software vendors. Others are considering out-sourcing options. Our accounting firm, along with others, offers those types of services.
What I’ve told clients is that if this is something that will affect you, time is running out. Maybe not this year, but opponents could find it increasingly difficult to hold off change. Thinking about it now will allow you to be better prepared and make the best decisions when the time comes.