Marketplace Fairness Act

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Marketplace Fairness Act of 2013
Great Seal of the United States
Full title To restore States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.
Introduced in 113th United States Congress
Introduced on February 14, 2013
Sponsored by Rep. Steve Womack (R, AR-3)
Number of Co-Sponsors 66[1]
Effects and Codifications
Act(s) affected "Internal Revenue Code of 1986", "Marketplace Fairness Act of 2013", "Mobile Telecommunications Sourcing Act",
U.S.C. section(s) affected 4 U.S.C. § 116–126,
Legislative history

The Marketplace Fairness Act is proposed legislation pending in the United States Congress that would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state. Identical versions were introduced into both the United States House of Representatives and the United States Senate during the 113th United States Congress. During the previous, 112th Congress, a bill (S. 1832) was considered but expired without enactment.

The current bill (the Marketplace Fairness Act of 2013) was introduced on February 14, 2013, in the House as H.R. 684 and in the Senate as S. 336. It was introduced a second time in the Senate as S. 743 on April 16, 2013[2] and was passed there on May 6, 2013.[3] All three bills are virtually identical and would allow states to require online and other out-of-state retailers to collect sales and use tax.[4]

Current law[edit]

Each state in the United States may impose a sales tax on products or services sold in that state. Most states impose a sales tax, some states do not; and each state may set the rate and scope (products taxed) of the sales tax. Within each state, counties and cities may have different sales tax rates and scope, resulting in many different rates based on the location of the point of sale. Generally, the states allow (or require) the seller to itemize and collect the tax from their customers at the time of purchase. Most jurisdictions hold sellers responsible for the tax even when it is not collected at the time of purchase.

Residents of the 45 states with sales and use tax must pay tax on their online purchases.[5][6] However, according to the Supreme Court rulings in National Bellas Hess v. Illinois (1967) and Quill Corp. v. North Dakota (1992), retailers, including catalog and online sellers, only need to collect sales and use tax for states where they have a physical presence.[7][8] If an online retailer does not collect sales tax at the time of purchase, the consumer must pay the use tax due directly to the state. While business compliance with use tax filing is quite high, consumer compliance is rather low. The Marketplace Fairness Act seeks to increase compliance and tax collections by shifting the responsibility for payment from consumers to retailers.[9]

Provisions of the bill[edit]

This summary is based largely on the summary provided by the Congressional Research Service, a public domain source.[2]

The Marketplace Fairness Act of 2013 authorizes each member state under the Streamlined Sales and Use Tax Agreement (the multi-state agreement for the administration and collection of sales and use taxes adopted on November 12, 2002) to require all sellers not qualifying for a small-seller exception (applicable to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the agreement, but only if the agreement includes minimum simplification requirements relating to the administration of the tax, audits, and streamlined filing. The bill defines "remote sale" as a sale of goods or services into a state in which the seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by the act.[2]

Previous versions[edit]

The 2011 version of the Marketplace Fairness Act (S. 1832) would have provided states with the authority to require out-of-state retailers to collect and remit use tax on purchases shipped into the state. In return, states would have been required to either join the Streamlined Sales and Use Tax Agreement[10] or to simplify their sales and use tax laws to comply with the Marketplace Fairness Act.[10] That bill would have required any seller who sells a product or service to a consumer in a participating state to calculate, collect, and remit the consumer's use tax based on the tax rates of that other state. The purpose was to offset use taxes that consumers evade paying in their home state when making interstate purchases.[10] The bill specifically made no distinction as to the manner in which the sale is transacted.

The 2011 bill provided an exclusion for businesses with annual sales of $500,000 or less. This was much smaller than the threshold used by the Small Business Administration for defining a small business: $30 million in most cases.[11] There was also no specific exclusion in the legislation to exempt resellers from the tax, so the Streamlined Sales and Use Tax Agreement would have applied to those sales: A retail shop owner who makes interstate purchases of applicable merchandise for resale in their store would be required to pay sales tax on those purchases or apply to their state for a reseller permit, resale license, or wholesale exemption certificate, any of which would exempt retailers from paying sales tax on purchases made for resale.[10]

There was no exclusion for businesses located in states that do not impose a sales tax, so business in those states would have been required to implement new sales-tax-collection systems and procedures to calculate, collect, and pay the new tax. Businesses in states that currently impose an intrastate sales tax would have needed to adapt existing sales-tax-collection systems and procedures to calculate, collect, and pay the interstate sales tax for each of the participating states.[citation needed][original research?]

Procedural history[edit]

Previous bills[edit]

In the 112th Congress, the bill (S. 1832) was introduced in the United States Senate on November 9, 2011.

Current bill[edit]

Senate bill S.743[edit]

S.743 was introduced into the Senate on April 16, 2013 by Senator Michael Enzi (R-WY).[2] As of April 23, 2013, the bill had 28 cosponsors - 21 Democrats, 6 Republicans, and 1 independent.[12]

Senate bill S.336[edit]

S.336 was introduced into the Senate on February 14, 2013 by Senator Michael Enzi (R-WY).[13] The bill was immediately referred to the United States Senate Committee on Finance. As of April 23, 2013, the bill had 29 cosponsors - 22 Democrats, 6 Republicans, and 1 independent.

House bill H.684[edit]

H.R. 684 was introduced into the House on February 14, 2013 by Rep. Steve Womack (R-AR).[14] The bill was immediately referred to the United States House Committee on the Judiciary. On April 8, 2013, it was referred to the United States House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. As of April 23, 2013, it had 55 cosponsors, 33 Democrats and 22 Republicans.[15]

Debate[edit]

Previous bills[edit]

In the 2011 Bill, opponents were concerned that the bill would have imposed an unrealistic burden on sellers and consumers,[16] while proponents said that it would have helped retailers with a physical presence in sales-tax states to compete with online retailers.[17] Proponents have argued that residents of states that impose a sales tax choose to purchase out-of-state products to avoid the sales tax and that businesses selling to customers in participating sales-tax states should collect and pay the new interstate sales tax, to mitigate the effect of consumers who illegally evade the use tax. Opponents of the bill argued that states already have the right to impose, or not impose, a sales tax, and if states wished to compete for interstate sales, they may reduce or eliminate their sales tax.

Large retailers who currently have a physical presence in most or all states are already required to collect sales tax on interstate sales to consumers in those states, so the bill would not have had a significant effect on them. (Technically, those sales are considered intrastate sales for taxing purposes because of the seller's physical presence within the taxing state.[citation needed]) Their smaller competitors who have stores in a few states or in one state are currently required to collect sales tax only where they have a physical location. If they have online stores, the bill would have allowed participating states to require them to calculate, collect, and pay the new interstate sales tax. Walmart, Target, Amazon, and other retailers have been reported as supporters of a new sales tax. The National Association of Music Merchants supported the 2011 Bill because it would have required online music sellers such as Apple's iTunes to pay the tax to some participating states.[18] eBay, Overstock.com, and other online retailers were opponents of the 2011 Bill. Retailers and government representatives in states that have no sales tax were generally opposed to the bill.

Supporters[edit]

The Alliance for Main Street Fairness (AMSF), is a PR campaign group paid to strongly support the Marketplace Fairness Act. The AMSF is funded by Wal-Mart and other largest retailers.[19] An AMSF spokesman works for Washington political-consulting firm FP1 Strategies.[20]

The Retail Industry Leaders Association (RILA), a trade association in the retail industry, spoke out in favor of the Marketplace Fairness Act of 2013.[21] In a press release, the organization argued that the bill would "level the playing field" between online-only retailers and Main Street businesses by giving the States the option to charge sales tax. Walmart and Amazon.com have teamed up in a massive lobbying effort in support of this legislation.[22][23][24][25] Other big backers of the legislation include many of the nation's largest "box store" retailers including BestBuy, Bed Bath and Beyond, Barnes & Noble, Dick's Sporting Goods, Foot Locker, Target, Staples.[26] In fact, the nation's biggest retailers spent over $50 million lobbying the Senate before its passage of the MFA on May 6, 2013.[27]

President Barack Obama indicated his support for the bill with a White House Statement of Administrative Policy on April 22, 2013.[28] In the statement, the White House expresses the concern that small local businesses are disadvantaged because they collect state sales tax in comparison to large online retailers who do not.

Governors from across the U.S. have also come out in support of federal legislation allowing states to collect a sales tax from purchases made online. Nearly fifteen state Governors have either signed legislation or are considering legislation while pledging to cut taxes for their citizens using the new revenues once Congress passes federal legislation. Conservative leaders and elected officials have also come out in large to support federal legislation to level the playing field for brick-and-mortar retailers.

Opponents[edit]

There is mounting opposition in the House of Representatives for the legislation as well as generational divide. Key opponents in the House include Reps. Thomas Massie (R-KY), Ron DeSantis (R-FL) and John Fleming (R-LA). All four members of New Hampshire's Congressional delegation oppose this legislation.[29]

In the Senate, the bill received stiff opposition from the states that do not have sales tax, which are Alaska, Oregon, New Hampshire, Montana and Delaware as well as key senators Ted Cruz and Rand Paul. Every single Republican under the age of 50 voted against the bill in the Senate.[30] After the bill passed the senate Attorneys General of Montana, Tim Fox, Alaska - Michael Geraghty, and Oregon Ellen Rosenblum have come out in strong opposition to the bill.[31] They feel strongly that it violates the constitution of the United States by authorizing the enforcement of state use tax laws that require remote sales retailers to collect and remit use tax proceeds to out-of-state taxing authorities that the retailer has not established "minimum contacts" with, the Act violates the Due Process Clause.

The Competitive Enterprise Institute (CEI), a non-profit think tank, criticized the Marketplace Fairness Act of 2013.[32] The group raised concerns that the bill undermined States sovereignty by giving states the ability to level taxes beyond their own borders; that the bill damages consumer privacy by forcing retailers to turn over customer data to state governments; that the bill hurts healthy tax competition between states; and that the bill faces legal issues regarding due process.[32]

NetChoice, a trade association of e-commerce businesses has long opposed MFA as it creates a new tax burden on businesses. NetChoice has warned that MFA would impede new startups and help the big-box stores crush main street. Testifying before the House Judiciary committee in March, NetChoice proposed a simple alternative.

Hal Hawkins opposes the bill arguing that it is not about fairness, but rather about some businesses failing to modernize, realizing that they are losing their competitive edge, and choosing to try and legislate against their competition.[33] In his words, "The Marketplace Fairness Act is similar to taxing the light bulb to support the candle industry."[33]

The National Taxpayers Union (NTU) also spoke out strongly against S.743, urging their organization's supporters to contact their Senators and encourage them to vote against it.[34] The organization announced that they would be using the way a Senator voted on the measure as one of their most heavily weighted votes when rating the Senators for the year. NTU opposed the bill because it would hurt tax competition between states and would "heap heavy burdens upon small businesses, which would face the task of collecting and remitting to nearly 10,000 taxing jurisdictions".[34]

The Heritage Foundation criticized the bill because it believes the bill would harm Internet commerce and small businesses.[35]

The True Simplification of Taxation Coalition (TruST), represents both e-commerce and catalog businesses that believe that they and their customers will be unduly harmed by this legislation unless there is much greater simplification and standardization across the states than is in the current version of the legislation.[36] TruST argues that the playing field is already level and provides a list of minimum simplification requirements.[37] Among the minimum simplification requirements are: a) a single set of definitions for taxable and exempt products for all states; b) a single audit on behalf of all states and local jurisdictions conducted by a single state where the seller has physical nexus, or a designated state in cases where a seller lacks physical nexus in any sales tax state; and c) a common sales tax return for remote sellers to file. The audit risk is also cited as a principal concern of the E Mainstreet Alliance, a group of small businesses, some of which are online only but many of which also have a brick and mortar presence, who are worried about being crippled by this legislation.[38]

Members of the American Catalog Mailers Association (ACMA),[39] say that the impact on catalog companies and their customers has largely been ignored as the press continues to report on this issue as an "online" tax. Millions of consumers who order by mail, especially senior citizens, may be disenfranchised.[9][40][41][42]

WE R HERE, a self-described coalition of small businesses, issued a press release against S.743 stating that, "worse yet, Internet Sales Tax proposals currently being considered contain definitions of small business entirely out of step with commonly accepted definitions. The Small Business Administration defines a small business in this industry as $30 million in annual revenue. The Internal Revenue Service defines a small business at $20 million in annual revenue. The Marketplace Fairness Act arbitrarily defines a small business as having $1 million in revenue."[43] The Small Business Administration definitions can be found in its Size Standards Table under non-store retailers (subsection 454). Electronic Shopping has a size standard of $30M, Electronic Auctions: $35M, and Mail Order: $35M.[11]

eMainStreet, is an alliance of small businesses who sell on the internet. They assert the Marketplace Fairness Act will impose a large compliance burden on their small businesses and expose them to up-to 46 audits per years from states where they have no physical presence, voting rights or political representation. They assert that this legislation will devastate many of their businesses and bankrupt some of them. They assert that the Marketplace Fairness Act is fundamentally flawed in its approach and cannot be fixed through amendments. Among the risks cited, are the risk of audits by all of the various states on a small business.[44]

Agricultural Retailers Association (ARA), expressed opposition to the Marketplace Fairness Act in a letter to the House Judiciary Committee. They asserted that the costs associated with MFA obligations would be a major deterrent for agricultural retailers currently involved in e-commerce. The ARA additionally expressed concerns that the proposed tax software would be inexpensive or easy to implement. The ARA also mentioned difficulty keeping up with various sales tax exemption certificates and the threat of audits for agricultural retailers.[45]

National Center for Policy Analysis (NCPA), a nonprofit, nonpartisan public policy research organization expressed concern that the Marketplace Fairness Act punishes sellers by requiring them to collect taxes for various state governments. The NCPA also raised questions about the amount of tax revenue that would be raised by the Marketplace Fairness Act because a large majority of e-commerce transactions are business-to-business. The research group takes the position that states should enforce use tax laws already on the books without burdening the private sector with the task.[46]

Computer & Communications Industry Association (CCIA) an international not-for-profit organization takes the position that the Marketplace Fairness Act, "creates a new imbalance by requiring small online retailers to administer a tax collection regime for multiple jurisdictions, while brick-and-mortar stores need only collect for the jurisdiction of its physical location."[47]

American Association of Attorney-Certified Public Accounts (AAA-CPA), the only organization of both attorneys and certified public accountants, takes the position that while the Marketplace Fairness Act addresses the issue of sales tax collection, it will place "crippling burdens" on interstate commerce and will harm the new internet marketplace. They state the goals of the Marketplace Fairness Act could be accomplished with "less burdensome means".[48] James Sutton, AAA-CPA Chairman of State and Local Tax Committee, provided expert testimony to the House Judiciary Committee on March 12, 2014 that a 'Consumer Private Reporting' (CPR) system could be developed as an alternative to the Marketplace Fairness Act. The proposed CPR system would facilitate use tax collection at the state level without undue burdens on interstate commerce.[49]

Electronic Retailers Association (ERA), a trade association of direct-to-consumer retailers expressed serious concern with the ability of small online retailers to absorb the costs associated with implementation. The association also takes the position that the Streamlined Sales Tax Project (SSTP) is not sufficiently simplified and would "decimate" small online retailers.[50][51]

Direct Marketing Association (DMA) world’s largest trade association dedicated to advancing data-driven marketing takes the position that the Marketplace Fairness Act interferes with the free flow of commerce between the states. The group called the MFA an 'unfunded mandate' to comply with complex and changing tax jurisdictions (nearly 10,000), tax holidays, and tax thresholds. The group also expressed concern that the MFA allows states to create their own definitions of what each taxable good is, allows each state to perform nationwide audits, and allows states to create their own tax forms as well as return schedules. The group also expresses concern that each state could interpret what the exact taxable value would be.[52]

See also[edit]

References[edit]

  1. ^ http://thomas.loc.gov/cgi-bin/bdquery/z?d113:HR00684:@@@P
  2. ^ a b c d "S.743 - Marketplace Fairness Act of 2013". United States Congress. Retrieved April 23, 2013. 
  3. ^ "S.743". Library of Congress. Retrieved 23 May 2013. 
  4. ^ "Members of Congress introduce bipartisan bill to level the playing field for local merchants". Mike Enzi, United States Senator for Wyoming. Retrieved February 19, 2013. 
  5. ^ O'Brien, Chris (September 12, 2012). "Um, About Those Tax Free Internet Purchases…You Still Owe Taxes On Them". SiliconBeat. Retrieved September 20, 2012. 
  6. ^ Overfelt, David (September 2, 2012). "Internet effort isn't a tax hike". Columbia Daily Tribune. Retrieved September 20, 2012. 
  7. ^ "National Bellas Hess v. Department of Revenue". Justia.com. Retrieved February 19, 2013. 
  8. ^ "Quill Corp. v. North Dakota". Legal Information Institute. Retrieved February 19, 2013. 
  9. ^ a b Harrison, Kate (June 22, 2013). "The Marketplace Fairness Act: Should You Join The Fight to Defeat It?". Forbes. Retrieved July 19, 2013. 
  10. ^ a b c d Text of S.1832
  11. ^ a b "Size Standards Table". Small Business Administration. p. 25. Retrieved April 24, 2013. 
  12. ^ "S.743 Cosponsors". United States Congress. Retrieved April 23, 2013. 
  13. ^ "S.336 - 113th Congress". United States Congress. Retrieved April 23, 2013. 
  14. ^ "H.R. 684 - Summary". United States Congress. Retrieved April 23, 2013. 
  15. ^ "H.R. 684 Cosponsors". United States Congress. Retrieved April 23, 2013. 
  16. ^ Legal Matters:Proposed Marketplace Fairness Act Threatens Direct Marketers
  17. ^ Kennedy, Sandy (August 8, 2012). "Closing Online Loophole Will Level Playing Field". U.S. News and World Report. Retrieved September 4, 2012. 
  18. ^ "NAMM Signatory with Coalition Concerning Marketplace Equity Act in US House". Retrieved September 4, 2012. 
  19. ^ Alliance for Main Street Fairness
  20. ^ Retailers Push Amazon on Taxes by Miguel Bustillo and Stu Woo, Wall Street Journal
  21. ^ "Bill Before U.S. Senate Will End Special Treatment of Online-Only Retailers". Wall Street Journal. Retrieved April 23, 2013. 
  22. ^ "Amazon & Wal-Mart team up to lobby for new online sales tax". Hot Air. August 2, 2012. 
  23. ^ "Amazon Stands to Gain from Online Sales Tax". Seattle Times. June 10, 2013. 
  24. ^ "Amazon's Love Note to Senate Backs Internet Sales Tax". All Things. February 14, 2014. 
  25. ^ "Internet tax mandate Good For Wal-Mart, Bad for Consumers and Bad for the Economy". Washington Times. March 19, 2013. 
  26. ^ "Supporters of MarketplaceFairness.org". 
  27. ^ "The Marketplace Fairness Act for Online Retailers". CPC Strategy. July 31, 2013. 
  28. ^ "STATEMENT OF ADMINISTRATION POLICY S. 743 – Marketplace Fairness Act of 2013". White House. Retrieved April 23, 2013. 
  29. ^ "Kuster highlights opposition to Internet Sales Tax". Associated Press. August 22, 2013. 
  30. ^ TED CRUZ AND MIKE NEEDHAM DISCUSS WHY YOUNGER PEOPLE OPPOSE INTERNET SALES TAX
  31. ^ Attorney Generals Against MarketPlace Fairness Act
  32. ^ a b Melugin, Jessica. "Facts on the Marketplace Fairness Act (S. 743, formerly S. 336)". Competitive Enterprise Institute. Retrieved April 23, 2013. 
  33. ^ a b Hawkins, Hal. "The Marketplace Fairness Act: Taxing Light Bulbs To Save Candles". HardHatters Blog. Retrieved April 23, 2013. 
  34. ^ a b "NTU urges all Senators to vote "NO" on S. 743, the "Marketplace Fairness Act (MFA) of 2013."". National Taxpayers Union. Retrieved April 23, 2013. 
  35. ^ Stephen Ohlemacher (April 25, 2013). "Internet sales tax embraced by no-tax Republicans". Yahoo! News. Retrieved May 9, 2013. 
  36. ^ "True Simplification of Taxation". TruST. 
  37. ^ "Minimum Simplification Requirements". 
  38. ^ "EMainstreet Alliance". 
  39. ^ "American Catalog Mailers Association". 
  40. ^ Geisler, Lou (May 21, 2013). "MFA Will Also Hit Mail-Order Retailers". Wall Street Journal. 
  41. ^ Urbanski, Al (July 5, 2013). "Does a Catalog Make A Sounds When It Falls". Direct Marketing News. 
  42. ^ "11 Catalog CEOs explain the Consequences of MFA". "2 minute video". 
  43. ^ "WE R HERE: Opposition to Senate Internet Tax Act Grows". Yahoo!Finance. Retrieved April 23, 2013. 
  44. ^ "The Marketplace Fairness Act's Audit Risk". Daily Caller. August 20, 2013. 
  45. ^ "ARA concerned about Marketplace Fairness Act". ARA. March 19, 2014. 
  46. ^ "The Marketplace Fairness Act:Tilting the Playing Field". NCPA. March 31, 2014. 
  47. ^ "CCIA Opposes Marketplace Fairness Act". CCIA Staff. February 14, 2013. 
  48. ^ "AAA-CPA Position on Marketplace Fairness Act". James H Sutton, Jr., CPA, Esq. May 2, 2013. 
  49. ^ "Testimony before the House Judiciary Committee - Exploring Alternative Solutions on the Internet Sales Tax Issue". James H Sutton, Jr., CPA, Esq. March 12, 2014. 
  50. ^ "Online Sales Taxes Shift Consumer Behavior, Study Shows". NPA. April 22, 2014. 
  51. ^ "ERA Sets the Record Straight on the Streamlined Sales Tax Project". Palm Beach Post. 
  52. ^ "DMA Expresses Disappointment with ‘Marketplace Fairness Act’". DMA Staff. February 14, 2013. 

External links[edit]

Supporters and Opponents:

Senate 743:

 This article incorporates public domain material from websites or documents of the United States Government.