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The Marketplace Fairness Act and Small Sellers

  • Nov 21, 2013 | Gail Cole

 How big should the small seller exemption be?

The Small Business Administration Office of Advocacy recently released "An Analysis of Internet Sales Taxation and the Small Seller Exemption,"  a document explaining the details of the small seller exemption as it applies to the proposed Marketplace Fairness Act (MFA). MFA gives states the right to compel remote sellers to collect and remit sales tax, with the exception of businesses with less than $1 million in remote sales in the prior fiscal year. The report analyzes the number of firms that could potentially qualify for the small seller exemption if MFA passes and the resulting impact on ecommerce.

The small seller exemption might not become an issue of the House fails to move the bill along. Last spring, the Marketplace Fairness Act of 2013 passed the United States Senate. Since then, MFA has been waiting in the House, where Chairman of the House Judiciary Committee Bob Goodlatte (R-VA) is reportedly examining MFA's small seller exemption and its single audit requirement before opening the bill to debate.

The version of the Marketplace Fairness Act of 2013 (MFA) passed by the Senate allows an SSE of $1 million. Some lawmakers and business owners worry that is too little, while others worry that even that threshold will exempt too many sellers. EBay, a vocal opponent, has proposed increasing the small seller exemption to $10 million and adding an employee threshold.


The gist of the Small Business Administration's analysis is as follows:

  • "974 of the Internet Retailer Top 1,000 companies have sales exceeding $1 million" (and would therefore not qualify for the SSE as the MFA is currently written);
  • "An SSE of $1 million would subject only a small share of business to the internet sales tax;"
  • "The volume of sales transactions subject to the tax would represent 57% of total U.S. online retail sales;"
  • "A higher SSE of $5 million would affect an even smaller share of online retailers, but the share of online sales affected would remain near 57%."
  • 16% of the surveyed companies already collect sales tax in all 45 sales tax states;
  • 25% of the surveyed companies collect sales tax in only one state; and
  • 3% of the surveyed companies don't collect any sales tax at all.

The analysis concludes with policy implications. It notes that while "an SSE provision would reduce administration and compliance costs for small online merchants," it would also "reduce the potential revenue gains to state and local governments by exempting a portion of online sale tax." It also acknowledges that "Main Street vendors—small and large alike—would continue to be disadvantaged relative to many online and mail-order vendors that would be protected by an SSE."

The Small Business Administration walks a thin line, since it represents both physical and remote sellers. And the issue is a delicate one. States want the sales tax revenue that has disappeared since the explosion of Internet retailers. Main Street businesses want a level playing field, and small businesses that sell remotely are worried about the costs in time and money associated with collecting sales tax in numerous states.

An automated sales tax solution can prepare your business for whatever happens with the Marketplace Fairness Act.

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.