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Get Ready for Internet Sales Tax - The Market Fairness Act

Posted by Emilie Fritsch on Jul 8, 2015

Internet Banking and Mobile Payments IllustrationThe Market Fairness Act of 2013 was a proposed bill that would make online retailers collect sales and use tax from all customers, even if the retailer doesn't have a physical presence in the state in which they sell goods. Currently, Amazon collects sales tax in about half of the United States, since they don’t have warehouses in every state. Only five states don’t have sales and use taxes, so nearly everyone would be affected by this so-called “Internet Sales Tax.”

The purpose of the bill is to increase compliance with state law. Legally, consumers are obligated to pay the same sales tax, even if a business doesn't collect it from them. However, while businesses strictly follow this law, consumers generally do not.

Don’t be pulled by the name, though. The bill was initially written in 2011. Lawmakers continue to revise it, search for support, and push the bill because passing it would be very profitable for most states.

What Does an Internet Sales Tax Mean for Your Business?

You’re already required to collect sales tax from customers who live in the same state as your business. If the Market Fairness Bill passes, businesses will be required to collect taxes for 44 other states, which is by far one of the biggest arguments against the bill due to its burdensome nature. Some argue that this shift of responsibility harms small businesses. It’s true that there will be extra legwork, but the process will inevitably be streamlined.

Extra accounting work aside, consumers may scoff at seemingly higher prices. Because sales tax compliance is so low, it’s not farfetched to think that most consumers don’t know that they should pay sales tax for online products, or they might know and not care. Buying a $34.99 floral arrangement online will now cost $37.61 with a 7.5% tax, for example. Consumers who have recurring orders might raise an eyebrow at the new price.

Market Fairness Act Supporters

Many big businesses support the bill because it levels the playing field between brick and mortar stores and online ones. Although Amazon initially rejected the idea, they’ve since become a supporter of it, along with Target, Best Buy, Barnes & Noble, and Walmart. Some people argue that the only reason Big Business supports Market Fairness is because the Act prevents start-ups and hinders small business, allowing companies like Walmart to crush potential competition more efficiently.

Conclusion

Change is difficult for Big Business, especially companies like Amazon and eBay, that deliberately avoid change to ensure that their customers don’t lose familiarity with them. Fortunately, this bill isn’t a deal-breaker for online retailers. And yes, it’s not a matter of if the Market Fairness Act passes, but when. There’s too much money riding on the bill to scrap it altogether. States do not benefit from merely hoping that residents pay use tax. So this bill will pass in some form or another, at some point in time.

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Topics: eCommerce