The Marketplace Fairness Act is Being Revived for Another Shot

Marketplace Fairness Act - Revived

Senators Dick Durbin of Illinois and Michael Enzi of Wyoming re-introduced the Marketplace Fairness Act to the Senate recently. The latest bill definitely resembles the version passed in May 2013. Bear in mind, the House – controlled by the Republicans – chose not to bring up the bill for a vote.

What Significance Does The Marketplace Fairness Act Hold?

The Marketplace Fairness Act would call for all out-of-state companies, including those distributing via catalogs and online, to secure sales tax on purchase of services and products sold between two states and then forward the taxes to the buyer's home state. Right now, sellers are only required to collect sales tax IF they own a physical store or office in the buyer’s home state. Should this bill be passed, it would rely heavily on the “Streamlined Sales and Use Tax Agreement” through the 50 states.

The Position of the Senate

The MFA’s core objective is to facilitate states collecting sales tax for all online purchases. Additional sponsors included democrat Heidi Heitkamp of North Dakota and republican Lamar Alexander of Tennessee. Further assistance for the act came from democrats Jack Reed and independent Angus King, Jr.

Our House of Representatives

The MFA was examined with cynicism in the House of Representatives. Speaker John Boehner selected not to even carry the legislation for a vote. His concern being that voters would perceive this as a tax hike step. Several representatives agree with Durbin that the MFA would create equality between local retailers and internet sellers. Many believe, as does Durbin, that the Legislature will do what’s best for companies over the long term.

However, there doesn’t seem to be a clear direction among House members. In the meantime, to Republican legislature to counter the MFA is being written by Bob Goodlatte. This new bill relegates the sales tax reporting to the Seller’s home state.

Extraneous Concerns

One of the groups opposing the bill is TechAmerica. They are the public-policy department of CompTIA, who advocates before law-makers at all levels of govt. The major concern here is the added compliance burden the law would force on companies doing business online.

Several legislators and lobbyists fear that this would stop internet sellers from doing business in States where it’s a cost burden to comply with the tax-collection burden. Those discussing the bill believe that the real matter at hand is how this can benefit both the States and the online businesses affected by its passage.

Currently, most websites - whether their State requires it or not - will not charge sales tax to out-of-state buyers. Consequently, the business owner leaves the reporting and payment of the sales tax to the customer. (And we both know this rarely ever happens.)

Strong support for the bill comes from the National Retail Federation. They welcome the attempt to give offline businesses the same opportunities as their online competitors. The heart of the matter here is that they believe the consumer should choose a provider based on overall price, not just whether they save on sales tax or not.

On several occasions, the NRF’s David French has stated that the MFA would level the playing field of sales tax inequality for all businesses. However, many see the MFA as just one more ploy to raise taxes. Most online businesses can underprice their brick and mortar competitors due to lower overhead – including the absence of the sales tax requirement. Adding the mandatory sales tax back into the equation would even the odds a bit.

Official Decisions

The 1992 Supreme Court ruling that established the “nexus rules” set the precedent for this current situation. It determined which merchants are required to collect sales tax from buyers. With that said, if congress decides not to take action on the bill, a recent Supreme Court decision could empower the Justices to revisit the “physical presence test” and the original nexus ruling.

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