Online Sales Tax

Published November 6, 2014

The Senate passed the Marketplace Fairness Act in May 2013, mandating that businesses collect and remit sales tax made on online purchases to states in which the buyer resides, regardless of where the seller is located. Because the MFA has stalled in the House, supporters of the bill are making efforts at both the state and federal level to push for its passage.

New York, California, Texas, and Pennsylvania have moved forward with alternative measures by passing laws that can create nexus by “click-through” or “affiliated” activities.

At the federal level, Senate Democrats, led by Majority Leader Harry Reid, are linking the MFA to an extension of a widely supported law that bars local taxes on Internet access, the Internet Tax Freedom Act (ITFA). The ITFA was originally scheduled to expire on November 1, but has been extended to mid-December.

If an agreement is not reached by the December deadline and the ITFA expires, state and local municipalities may begin to tax businesses and individual users via their Internet service providers.