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Saturday, May 18, 2013

More on Marketplace Fairness Act (S. 743)

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act, allowing states to collect sales tax from some remote sellers (see May 8, 2013 post). I don't think this bill will be enacted quite in this form. If passed in the House, I think it will be modified to address some oddities regarding the small business exception. The current version of the bill provides that if the seller has remote sales of $1 million or less, it doesn't have to collect in those states. Remote sales are ones where without this legislation, the seller would not be required to collect (states where it has no physical presence). 

I note one oddity in the May 8 post, another is the size differential that could exist on who has to collect and who does not. 

Example: ABC primarily has sales in CA - $50 million per year. It also has a few sales outside of the state, totaling $600,000.  ABC only has to collect in California, assuming it has no physical presence elsewhere.  In contrast, XYZ has $800,000 of sales in California and that is the only place where it has a physical presence. It has sales outside of CA in about 20 states and those sales total $1.2 million.  XYZ has to collect in all of those states.

Seems odd and a significant compliance burden for the relatively small XYZ in comparison to the very large ABC. A possible solution is to also have a de minimis rule for sales within any one state. Another is to limit the small seller exemption to truly small sellers so that ABC needs to collect onall of its sales.

I've got a short article in the AICPA Tax Insider this week (5/16/13) on S. 743 and its basic operation and some of its issues - Marketplace Fairness Realities.

What do you think?

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