According to recent reports, The Marketplace Fairness Act (MFA) is making a comeback. That means online commerce is on the brink of a lively debate about the definition of a small business and fair taxation. But what exactly does it entail, and what should ecommerce businesses know about it?
In a nutshell, The Marketplace Fairness Act would allow states to collect sales tax from businesses that don’t have a physical presence within its borders. It would apply to any business making over $1 million in annual revenue – so everyone from mom-and-pop online shops to big retail brands operating online.
Why this proposal? The aim is to level the playing field between online businesses and brick-and-mortar stores.
Brick-and-mortar stores currently collect sales tax on every purchase made in their stores, whereas businesses that operate online only collect sales tax from customers based in the state in which they operate. So if an online business operates in Illinois, but its customer is based in Maryland, that customer won’t pay sales tax upon purchase.
The customer is then responsible for paying the sales tax when filing income taxes, but rarely do, or even know about it. As a result, online businesses are seen as having an advantage over brick-and-mortars, and states are losing out on the tax money.
The Marketplace Fairness Act would provide software to online businesses so they can collect the appropriate state sales tax upon purchase.
Two sides of the debate
This isn’t the first time the MFA has made the rounds on Capitol Hill. The Senate passed the bill in May 2013, but it was stonewalled once it got to the House. Endicia surveyed consumers when the bill was originally on the table. We found that 61 percent of voters disagreed with the measure, while 44 percent said they would purchase less online should the bill pass.
From the state’s perspective, the MFA is a way of stimulating the local economy. As Senator Mike Enzi (R-Wyo.) stated: “The Marketplace Fairness Act is about supporting the jobs we have in our towns. It’s about the people who are our neighbors who work in our local stores.”
However, opponents argue that the measure will end up benefitting big box retailers rather than small businesses. This is because large retailers are able to negotiate tax breaks in a way that smaller online sellers cannot.
One thing is for sure – this isn’t the last we’ll hear about this issue and the discussion will likely get a lot more heated before it ultimately gets resolved.
We’d love to know – what are your thoughts on the Marketplace Fairness Act, and how do you think it would impact your business? Feel free to share in the comments below.