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The Future of Internet Sales Tax and Internet Tax Freedom

  • Jul 17, 2014 | Gail Cole

 Can internet sales tax be linked to internet tax freedom?

The Marketplace Fairness Act of 2013, which passed the Senate last year but has languished in the House, would allow states meeting certain requirements to impose a sales tax obligation on certain internet sellers.

The Permanent Internet Tax Freedom Act, which was approved by the House on July 15, would make “permanent the ban on state and local taxation of internet access and on multiple or discriminatory taxes on electronic commerce.”

Put the two together and you get the Marketplace and Internet Tax Freedom Act, which was introduced in the Senate earlier this week. As the name suggests, MIFTA links internet tax freedom with internet sales tax.

Internet sales tax

The Marketplace Fairness section of the bill allows states to impose a sales and use tax obligation on remote vendors are not otherwise required to collect it. At the heart of the bill is the need for states to simplify their sales and use tax administration.

Member states of the Streamlined Sales and Use Tax Agreement would be in a strong position, as the bill authorizes members “to require all sellers not qualifying for the small seller exception… to collect and remit sales and use taxes with respect to remote sales sourced to that Member State….” There are, of course, additional details, most notable being that any changes to the Sales and Use Tax Agreement made after enactment must not conflict with “the minimum simplification requirements …” outlined in the bill.

Non-streamline states would also be able to require certain remote sellers to collect and remit sales tax, “but only if the State adopts and implements the minimum simplification requirements” detailed in the bill.

Small seller exception

Like the Marketplace Fairness Act, MIFTA allows an exception for small sellers. States could only impose a sales tax obligation on remote sellers with “gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000.” In other words, remote sellers grossing less than one million dollars in the preceding calendar year could not be required to collect sales tax in states where they do not have nexus.

Internet tax freedom

The Internet Tax Freedom section of the bill is short and sweet. It simply extends the expiration date of the Internet Tax Freedom Act, currently set at November 1, 2014, to November 1, 2024. Although the bill would not make internet tax freedom permanent, as some lawmakers would like, it would provide ample time to come up with a more permanent solution. Or not.

States currently allowed to tax internet access under the grandfather clause would be able to continue current practices until November 1, 2024.

Is the time right?

The National Retail Federation (NRF) stands firmly behind MIFTA and will work to see that it “moves quickly.” NRF Senior Vice President for Government Relations had this to say about it:

“The National Retail Federation applauds the introduction of this bipartisan legislation that seeks to level the playing field between local, brick-and-mortar merchants and online retailers without creating or raising taxes.”

Likewise, the International Council of Shopping Centers strongly supports the bill. The Senior Vice President of Global Public Policy for ISCS notes that “[t]wenty-first century retail demands a 21st century solution…. The time for efairness is now.”

But support for the bill is not universal. Six senators have written a letter urging Senate Leadership to “extend the ITFA [Internet Tax Freedom Act] as soon as possible, and to keep this legislation free of extraneous efforts to impose new taxes on Internet sales [Marketplace Fairness Act]. And Senate Finance Committee Chairman Ron Wyden (D-Oregon), who strongly supports internet tax freedom, says that “the Marketplace Fairness Act … would amount to a body blow to online retailers and services across the country.”

Read the full text of the Marketplace and Internet Tax Freedom Act.

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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.