Proposed Small Business Legislation that May Affect Your Business
Small business legislation currently being considered in the U.S. Congress may have significant impact on both online and brick-and-mortar enterprises. Chief among the proposed bills are the Marketplace Fairness Act, the Remote Transactions Parity Act, and the Online Sales Simplification Act. Here's a look at each bill, with a brief description of the pros and cons.
The Marketplace Fairness Act (MFA)
Originally passed in the U.S. Senate in 2013 (but never brought before the House of Representatives), the Marketplace Fairness Act of 2015 (Senate bill 698) would permit all U.S. states to mandate that retailers charge a sales tax to online customers in all states and localities that currently have a sales tax. Under this legislation, "states would be allowed to require all sellers to collect sales tax if the state has adopted certain simplification provisions." Retail businesses with under $1 million in annual revenue from remote sales would be exempt from this statute.
Supporters contend that MFA brings "fairness" back to the marketplace, since at present brick-and-mortar stores are obliged to charge state sales tax, while in many cases online businesses do not and can therefore offer discounted prices to customers (at least in part because they're free from charging sales tax). "The local retailers in our communities are struggling to remain viable in this climate," writes economic developer Rachel Selsky, "and leveling the playing field with online retailers, even just a little, could help turn the tide."
Additionally, MFA proponents say, increases in state revenue generated through such a sales tax might lessen the amount of tax collected from income and property taxes, thus enhancing the amount of available funds customers can spend locally.
Those opposed to MFA point to the immense administrative challenges involved in requiring online businesses to charge sales tax across almost 10,000 U.S. sales-tax jurisdictions. Critics also note that a customer who buys goods (and must pay sales tax) from a state where they don't live amounts to "taxation without representation") and that big-name online retailers would likely relocate to states with a lower sales tax rate. There's also concern that customers will cut back on online purchases if sales tax is involved.
The Remote Transactions Parity Act (RTPA)
This legislation resembles MFA in permitting states to apply sales tax to remote sales. As noted by tax experts at McDermott Will & Emery, states that belong to the Streamlined Sales and Use Tax Agreement (SSUTA) would have the authority to compel remote sellers to collect sales tax on their transactions. A state that is not an SSUTA member would have the same authority to "collect and remit sales and use taxes" as long as it "implements certain simplification requirements and protection for remote sellers and certified software providers."
Critics of RTPA assert that this legislation would result in states enacting a burdensome number of new laws. Another problem centers on what's called a "small seller" (defined on the basis of a business's gross receipts from remote and non-remote sales). According to the professional services firm Miles Consulting Group Inc., if a small seller collects too much revenue from in-store sales, it could forfeit the small seller designation, "meaning they would have to collect sales tax across the country sooner." Additionally, "the compliance burden would be far too great if a seller were required to begin collecting taxes on the very first sales out of state."
RTPA supporters like Fred Zeagler, owner of Zeagler's Music in Louisiana, support the restoration of "free-market principles to the marketplace." Brick-and-mortar businesses are closely regulated by current sales tax laws, "while online-only sellers, often selling the same products to the same consumers, are not required to collect sales at point of sale." This provides an unfair advantage to online-only sellers when, Zeagler contends, "to support a truly free marketplace, tax treatment must be the same for everyone."
The Online Sales Simplification Act (OSSA)
This proposed legislation differs from the Marketplace Fairness Act and the Remote Transactions Parity Act in that it has no small seller exception and would permit states to require that in-state sellers collect sales tax on interstate sales. According to automated sales tax provider Avalara, "OSSA adds layers of complexity to remote sales tax collection." Under OSSA, the sales tax rate would be based on the state where the business is located and the tax would be collected at the place of business. Then a multistate clearinghouse would be used to distribute the tax revenue to the state where the buyer lives.
Those who support OSSA note that the legislation lessens the obligation to assess the tax for all orders placed through a seller's website. Critics counter by noting that it "only applies to remote sales" (where the retailer has no physical presence), while "sales made into the seller's home state ... are taxed as they have been traditionally."
As of this writing, none of this proposed small business legislation faces imminent passage. In fact, according to InternetRetailer.com, if either MFA or RTPA do become law, a delay of at least one year will be needed for ecommerce retailers to adjust their business operations to meet the new regulatory standards.