A Guide to the Marketplace Fairness Act of 2015
The Marketplace Fairness Act at a glance
Earlier this year, several members of the Senate introduced the Marketplace Fairness Act of 2015 (MFA), legislation similar to the 2013 MFA proposal. Essentially, this legislation grants states authority (should they meet certain streamlining criteria) to require non-exempt remote sellers to collect sales tax.
The bottom line: If passed, the MFA would broaden state authority to require remote sellers to collect sales tax regardless of whether that business has a physical presence within those states.
The MFA would not override current state and local statutes surrounding product and service taxability, tax holidays, exemptions, or related rates, boundaries and rules.
The stated purpose of the Marketplace Fairness Act of 2015 is to “…restore States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.”
Streamlined Sales Tax Member States
The bill would authorize states to require remote sellers to collect and remit sales tax in accordance with state and local laws, as long as those states are in full compliance with the Streamlined Sales and Use Tax Agreement, or a member of the Streamlined Sales Tax (SST) organization, or implement a minimum set of simplification measures detailed below.
According to the legislation, "Each member state under the Streamlined Sales and Use Tax Agreement is authorized 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 currently 23 full member states that comply with the following:
- State level administration of sales and use tax collections.
- Uniformity in the state and local tax bases.
- Uniformity of major tax base definitions.
- Central, electronic registration system for
- all member states.
- Simplification of state and local tax rates.
- Uniform sourcing rules for all taxable transactions.
- Simplified administration of exemptions.
- Simplified tax returns.
- Simplification of tax remittances.
- Protection of consumer privacy.
For states not members of the SST, the minimum simplification measures required prior to exercising the MFA-related authority include:
- A single entity within the State responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the states.
- A single audit of a remote seller for all state and local taxing jurisdictions.
- A single sales and use tax return to be used by remote sellers.
- A uniform sales and use tax base.
- All interstate sales should comply with destination-based sourcing rules.
- Information regarding taxability of products and services including any applicable exemptions must be made available to all remote sellers.
- Software that calculates and applies correct tax rates must be made available to all remote sellers.
Once states become members of the SST or implement the simplification measures specified within the legislation, they would be granted authority to require remote sellers to collect and remit sales tax.
Streamlined Sales Tax FAQ
We've taken the time to provide short answers to some of the most commonly asked SST questions.
What is the small seller exception?
Answer: According to the legislation, a state is authorized to require a remote seller to collect sales and use taxes "...only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year, in excess of $1,000,000."
Would this law apply to all out-of-state businesses?
Answer: No. The legislation only impacts those out-of-state or remote sellers that are not subject to the small seller exception, are not currently collecting sales tax, and are selling into states that have instituted streamlining efforts.
If passed, MFA would not apply to sales by multi-state online retailers that already have nexus within a state and currently collect and remit tax. Those relationships and associated tax obligations would remain in place in accordance with state and local laws.
MFA gives states additional taxing authority over remote sales, whether conducted over the Internet, via phone, or mail order catalog. If a state simplifies their tax code as specified in the bill, they would be authorized to require certain out-of-state sellers to collect sales tax based on the destination of purchased products or services (the location of the buyer).
So any out-of-state online retailers or mail order or catalog retailers that do not currently collect sales tax could have to do so according to the statutes in the state where the product or service is delivered if the transactions are sourced according to the legislation.
What kinds of sales would not be impacted by this legislation?
Answer: There are several types of sales that are not impacted by MFA.
- Intrastate sales.
- Remote sales when the out-of-state seller already has nexus.
- Small out-of-state businesses that have remote sales in the prior calendar year of less than the gross remote revenue amount specified in the legislation; and
- Sales made into states with no state sales tax (Alaska, Montana, New Hampshire, Oregon, Delaware).
My company sells into several different states. How do I know which states would require me to start collecting sales tax if this passes?
Answer: First, if you don’t already know where your company has nexus (and many companies don’t have a full understanding), you should talk to a tax expert immediately.
Second, if you do not currently have nexus in states into which you sell, and do not collect sales tax on those sales, this legislation could change that by adding additional tax collection obligations on your remote sales.
Could this law be challenged?
Answer: Even if this bill is signed into law it may still be challenged on grounds of constitutionality. Legal challenges such as these would likely delay enactment.
For more information, please refer to the full text of the Marketplace Fairness Act legislation
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