After our high level introduction of the online sales tax issue, we’re going deeper today with a guest post from sales tax experts Avalara. Avalara answers five of the most important questions retailers have about the online sales tax issue.
1. When might Marketplace Fairness go into effect?
While the potential effective date is indeterminate at this point, some believe the law could go into effect within 12 months.
The bill passed the Senate in early May and will now go to the House for a final vote, if one is called. If the House passes the bill after June 30, 2013, but before October 1, 2013, the soonest any state could start enforcing the laws is April 2014.
If the bill passes the House and is signed into law by the President and if it does not face legal challenges, the earliest states could implement this would be 180 days following enactment.
2. Would this law apply to all out-of-state businesses?
No. Only those sales by remote sellers that do not currently have nexus in a state, and that are not currently required to charge customers sales tax. Other organizations would not have to collect include those currently exempt from doing so, and those qualifying for the small seller exception.
If passed, MFA would not apply to sales by multi-state online retailers that already have nexus within a state and currently collect and remit sales tax. Those relationships and associated tax obligations would remain in place in accordance with state and local laws.
MFA gives states additional taxing authority over remote sales, whether conducted over the Internet, via phone, or mail order catalog. If a state simplifies their tax code as specified in the bill, they would be authorized to begin requiring all out-of-state sellers to collect sales tax, according to the destination of purchased products or services.
Therefore any out-of-state online retailer or mail order or catalog retailer that does not currently do so, would have to collect sales tax according to the statutes in state where the product or service is delivered.
3. What kinds of sales would not be impacted by this legislation?
There are several kinds of sales that are not impacted in any way by MFA.
• Intrastate sales
• Remote sales, when the out-of-state seller already has nexus
• Small-out-of-state businesses that have remote sales in the prior calendar year of less than the gross remote revenue amount specified in the legislation (currently $1 million, but likely to change in final legislation)
• Sales made into states with no statewide sales tax (Alaska, Montana, New Hampshire, Oregon, Delaware)
4. My company sells into several different states. How do I know which states I need to collect sales tax in if this passes?
First, if you don’t already know where your company has nexus (and many companies don’t have a full understanding), you should talk to a tax expert immediately.
Second, if you do not currently have nexus in states into which you sell, and do not collect sales tax on those sales, this legislation could change that, by adding additional tax collection obligations on your remote sales.
5. Could this law be challenged?
Yes. Even if this bill is signed into law it may still be challenged on grounds of constitutionality. Legal challenges such as these would likely delay enactment.
If you’d like more information on the Marketplace Fairness Act or information on how Avalara can automate sales tax collection, visit salestaxchanges.com
