The Current State of the Marketplace Fairness Act

If you’re an online seller, freelancer, or have any interest in Internet rights advocacy you’ve no doubt heard of the Marketplace Fairness Act (MFA). Talk about it has ramped up considerably over the past few weeks as it winds its way through the legislative branch of our government. However, not everyone knows exactly what the Act is, or how it could potentially change their online business.

It’s important to know what’s around the corner in the ecommerce world. So to get everyone up to speed, let’s take a look at the MFA and how it will affect businesses all over the Internet and beyond.

What is it?

Time for a quick history lesson. Back in the 60’s, mail order companies were tired of paying sales tax in states where they didn’t even have any kind of presence. They would operate out of Wisconsin, let’s say, and sell an item in California…and still have to pay sales tax in California. A case about sales tax went all the way to the Supreme Court, where that august body ruled that the recordkeeping required to pay sales tax in all states was just too burdensome. In the 1990’s, the Supreme Court again ruled against the collection of sales tax by mail order companies but added the caveat that essentially said “Congress is free to disagree with this and pass further laws regarding sales tax.” 

Then the Internet came along, and with it came ecommerce. This ended up being a much bigger enterprise than mail ordering ever was. In the end, this meant states were losing out on a lot of money they could have been collecting by requiring out-of-state online sellers to collect and remit sales tax. The recent economic crisis brought this home. States were having to shutter departments and resources due to lack of revenue, and collecting sales tax would give them a vital source of funds. Not to mention, shops on Main Street were closing their doors.

So to try and combat this they introduced several versions of the MFA. This latest version, however, looks like it might pass. Basically, the aim is to even the battleground between local businesses and online shops by making online stores pay sales tax in states they sell in. That same shop in Wisconsin, now an ecommerce store, must pay sales tax in California if they sell an item there.

What’s the Latest?

Naturally, this hasn’t set well with online sellers. Ever since talk started about online sales tax online sellers have been up in arms, lobbying and protesting. Unfortunately for them and the community at large the MFA is starting to look like an inevitability.

And it has – well, in the Senate anyway, by a 69-27 margin. All that’s left is the House to vote on it and the bill is basically through – the Obama administration has said they like the bill and will support it if it passes. So unless a miracle happens Internet sales tax will be a reality for every ecommerce business in America.

So how will this affect your day-to-day business life? It really depends on two things: what you sell in states around the country, and how organized you are. If you’re good with math or have great accounting software, you’ll be fine with all the various tax rates and figuring out what you owe.

That’s right: each state has its own tax rate. So now not only do you have an added expense to take care of, you also have to figure out what each sale is. This takes time and if you’re not organized it’s going to drive you bananas.

The other issue, which is honestly the main point everyone is worried about, is how it’s going to affect your sales. Customers may decide to just go down the street instead of ordering online since they have to pay sales tax either way. There’s really no way to tell until we’re in the thick of it, but either way it will be interesting to see.

What’s your opinion on the potential internet sales tax?

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