Avalara Taxrates > Blog > Sales Tax News > Evidence For and Against the Marketplace Fairness Act - Avalara

Evidence For and Against the Marketplace Fairness Act


 How would the Marketplace Fairness Act affect small businesses? Everyone wants to know.

The Marketplace Fairness Act of 2013 would grant states the right to impose a sales tax collection obligation on out-of-state vendors not currently required to collect sales tax. Like most issues involving taxes and politics, the Marketplace Fairness Act of 2013 (MFA) has staunch supporters and staunch detractors.

Supporters speak of fairness. Main Street retailers speak of lost sales, pointing to customers who come into their stores, look at items, then go home and purchase them online, tax-free. Governors speak of lost sales tax revenue and how that impacts services.

Detractors speak of undue burdens. Etailers reference the nation’s thousands of tax jurisdictions and how difficult it would be for out-of-state retailers them to submit sales tax to multiple states. Lawmakers pull out their constitutions and note that the Commerce Clause protects interstate commerce from business-hindering taxes.

People speak out strongly for and against the Marketplace Fairness Act of 2013. And they work to find proof that what they say is true.

Recently, both the Minority Media Telecommunications Council (MMTC) and the International Council of Shopping Centers (ICSC) came up with evidence against (MMTC) and in favor of (ICSC) the Marketplace Fairness Act of 2013.

ICSC: New National Poll Shows Overwhelming Support for Collection of Online Sales Tax at the Time of Purchase

ICSC has long argued that “a sale is a sale” no matter where or how it takes place. The ISCS poll, conducted by the Opinion Research Corporation, sampled 501 men and 500 women aged 18 or older. According to ISCS, the poll found that:

  • 78% of voters feel it would be easier to pay state sales or use tax on online purchases at the time-of-purchase rather than through special forms or when they file their income taxes;
  • 64% of consumers are aware that they are required to pay state sales or use tax on online purchase, if not collected by the online seller, when they file their state income tax; and
  • 64% of Americans support federal legislation that would require online-only sellers to collect sales tax at the time-of-sale.

The poll notes that consumer awareness is growing around this issue, and as it grows, more people approve of MFA.

MMTC: Online Sales Tax Will Disproportionately Hurt Minorities and Women Who Own Small Businesses

MMTC bases its argument on a paper by Jonathan Orszag, a Senior Managing Director and member of the Executive Committee of Compass Lexecon, LLC, among other positions. The paper was supported by funding from eBay, Inc.—a vocal opponent of MFA as it is currently written.

The “Definition of Small Business in the Marketplace Fairness Act of 2013” notes that the MFA “exempts businesses with sales of $1 million or less of annual out-of-state sales from collecting sales taxes in states where the business does not have a nexus.”

The paper asks the following:

  1. How does the definition of small business in the MFA compare to the definition of small business used by other government agencies?
  2. Is there empirical evidence to support the definition of small business in the MFA?
  3. How many small businesses are there nationwide, and what proportion of those businesses are small minority- and women-owned businesses (SMWBs)?

How does the definition of small business in the MFA compare to the definition of small business used by other government agencies?

The definition of small business varies by industry, according to the Small Business Administration (SBA). Generally, the size of a business is determined by employment size and average annual sales over a three year period. Examples of SBA industry thresholds include:

  • Mail-order retailers: sales of less than $35.5 million;
  • A group of doctors: sales of less than $10 million;
  • Dry cleaners: sales of less than $5 million.

Is there empirical evidence to support the definition of small business in the MFA?

“The definition of small business in the MFA does not allow for any such variation by industry…. There is no evidence that I am aware of that would support the notion that the appropriate definition of small business is less than $1 million of out-of-state-sales…. It is very likely that many small businesses under the extant SBA rules would be ‘large’ businesses under the MFA’s definition of a small business.”

How many small businesses are there nationwide, and what proportion of those businesses are small minority- and women-owned businesses (SMWBs)?

Census Bureau estimates from 2010 place the number of small businesses in the United States at approximately 27.8 million. In 2010, they employed “roughly half of the private-sector labor force.”

The most recent data on the demographics of small businesses is from 2007. At that time, of approximately 27 million small businesses:

  • Roughly 7.8 million were owned by women;
  • Approximately 4.6 million were owned equally by men and women;
  • 2.3 million were owned by Hispanics;
  • 1.9 million were owned by African Americans;
  • 1.6 million were owned by Asian Americans;
  • 237,000 were owned by Native American Alaskans; and
  • 38,000 were owned by Hawaiian/pacific islanders.

In sum, well over 5.8 million small businesses in 2007 were owned by minorities, and nearly 8 million were owned by women. That’s almost half of the small businesses in this country. The study does not break down small businesses into brick-and-mortar retailers and internet retailers.

The paper concludes with, “It would be better… to allow the definition to vary by retail sector, consistent with SBA’s existing rules…. Such a definition is also less likely to harm SMWBs.”

Referencing the study, “MMTC Vice President Nicol Turner-Lee criticized the Marketplace Fairness Act… saying its small business exemption of $1 million is inadequate to protect minorities and women. “ She said that the “current small-business exemption in the Marketplace Fairness Act could keep minority- and women-owned businesses from operating across state lines.” (The Hill).

The Marketplace Fairness Act of 2013 is currently under review in the House. It was overwhelmingly approved by the Senate in May.

How does your business handle sales tax changes?

photo credit: Oberazzi via photopin cc


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.