Senate lawmakers have overwhelmingly voted to pass a bill which would bring an end to tax-free online shopping.
The Marketplace Fairness Act of 2013, which sailed easily through the Senate on Monday with a bipartisan vote of 69 – 27, is expected to struggle in the Republican-controlled House of Representatives. Currently, e-commerce merchants are required to collect taxes from only customers who live in a state where the merchant has a physical footprint. If the bill became law, online retailers would be expected to collect sales taxes from all customers, including customers in states where the online retailer does not have a physical presence.
Next, the House of Representatives will have to consider the bill before it can land on the President’s desk. The bill is not yet on the House's legislative calendar.
Advocates of the law, including the White House, say that the Marketplace Fairness Act levels the playing field for brick and mortar small businesses, which often struggle to compete with the prices online e-tailers can offer because they don’t have to charge sales tax. Also, the law would bring in much-needed tax dollars for state budgets.
Republicans don’t normally support a tax increase of any kind, but The Marketplace Fairness Act does have the support of some Republican lawmakers. Today, two leading Republicans -- Al Cardenas, chairman of the American Conservative Union, and Colin Hanna, president of the conservative group Let Freedom Ring -- called on House and Senate Republican lawmakers to get behind the tax change.
“No one is in favor of piling new tax burdens on hard-working Americans, least of all the two of us,” says the letter from Cardenas and Hanna. “Conservatives support the Marketplace Fairness Act because it is pro-free market, pro-business, pro-fairness and pro-growth.”
Critics of the law argue that the administrative burden of collecting sales tax from multiple states is too much for small businesses. EBay’s CEO John Donahoe has been an especially vocal opponent of the legislation. Donahoe sent emails to the small-business sellers and to eBay shoppers asking them to protest the law to their respective members of Congress.
“For more than 15 years, our company has persistently fought efforts to expand Internet sales taxes and impose new burdens on small businesses,” said Donahoe in email sent to eBay sellers obtained by Entrepreneur.com. “Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer. It may harm your ability to grow and costs jobs, including yours.”
As currently written, the Marketplace Fairness Act exempts e-tailers with less than $1 million in gross annual revenue, but small-business advocates say the exemption should include larger businesses. EBay wants small businesses with less than 50 employees or less than $10 million in annual out-of-state sales to be exempt.
Tax compliance software company TaxClouds object to the idea that the Marketplace Fairness Act would put undue burden on small merchants. “It is sort of like, when, you know, the federal government told everybody they had to have seatbelts. People didn’t have to rush out and put seat belts in their car. The manufacturers were the ones that installed the seat belts,” says Daniela Saunders, the senior vice president of sales and marketing at Seattle-based FedTax, the company which offers TaxCloud.
TaxCloud is a free software program paid for by state governments that helps merchants ensure they are collecting and submitting appropriate taxes, at the correct rate, and submitting the payment to the right person. “It’s the systems that e-commerce merchants use that are going to integrate the software and help them comply with these laws,” says Saunders.
While not all online merchants use shopping cart software and tax compliance software, Saunders says that those with over $1 million in annual revenue, such that will be affected by the law, overwhelmingly already do. In addition to TaxCloud, entrepreneurs can use one of the other five certified tax compliance software programs to ensure they are collecting the correct amount of tax from each customer. The Streamlined Sales Tax Governing Board, a group of leaders from states looking to ease the struggles of paying taxes for remote sellers, has outlined all six programs available for merchants. They are as follows:
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