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Million Dollar Question: Will You Be Exempt from Online Sales Tax?

With the Marketplace Fairness Act of 2013 (MFA) gaining traction in Congress, many online businesses and remote sellers are trying to figure out exactly how the bill would apply to them if it passes. Naturally one of the most popular questions for smaller businesses is “Does this apply to me?” This post explains how the "small seller exemption," actually called the small seller exception, works.

Q: Who would qualify for the small seller exception?

A: Here’s what the bill says:

A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000.

In other words, if you gross $1,000,000 or less in remote sales per year, new sales tax rules won't apply to you.

Q: What is a "remote sale?"

A: A remote sale is a sale into a state where you are not currently required to collect sales tax. Typically this is a sale into a state where you have no physical presence.

Q: Is the $1,000,000 threshold per state or for all states combined?

A: The $1,000,000 threshold refers to the total of all remote sales you make, regardless of the number of states. So it is not $1,000,000 for each individual state where you make remote sales.

Q: What time period is used to determine your gross remote sales?

A: The bill uses your gross remote sales from the previous calendar year to determine if you qualify for the small seller exception.

Q: What are the requirements that small sellers will avoid?

A: If you qualify for the exception, you won't have to collect sales tax on remote sales.

Q: How does affiliate or partner revenue impact the exception?

A: There are two cases where the revenue from other businesses would be added to your gross revenue to determine if you qualify for the exception:

  1. If the other business or businesses are related to you in the way defined by section 267 of the IRS Code of 1986.
  2. If you have ownership relations with other businesses designed to avoid collecting sales tax under the MFA.

Q: Could this exception change before the bill passes?

A: Yes. Several groups, including eBay, have lobbied to change the threshold for the small seller exemption.

Q: Where can I go to get up-to-date info on this bill?

A: salestaxchanges.com

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.
Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei directs social media and blogging for @avalara. He is on a mission to help make sales tax less taxing for businesses of all kinds.