INSIGHT ARTICLE |
While the Marketplace Fairness Act of 2013 (MFA), a bill intended to level the tax playing field between remote sellers and local retailers, may be stalled out in the House after passing in the Senate earlier this year, its concept lives on, and businesses should continue to be mindful of it.
The MFA would allow qualifying states the authority to require remote sellers to collect sales tax on all sales subject to tax, regardless of whether businesses have nexus or defined presence in the state where their goods or services are delivered. Supporters of the MFA say remote sellers should be responsible for collecting and remitting sales tax in the same manner as traditional brick-and-mortar businesses. Critics say the costs of implementing the law would amount to a penalty that could be particularly burdensome for small and midsized remote-seller businesses. While the likelihood of MFA passage appears to be fading, the spirit of the law continues, and some states may end up passing their own affiliate nexus laws to address tax enforcement on Internet or remote sellers.
Is the MFA a positive or negative? It depends on company size, survey says.
According to a McGladrey LLP survey of decision-makers at small and midsized online retailers, these companies are divided over the potential impact of the MFA and states’ possible treatment of this sales and use tax issue. The division is largely based on company size. The survey sheds light on why smaller online retailers have been portrayed as both the victims and beneficiaries of the proposed law. The results, which are based on a survey of more than 240 executives, owners and decision makers of online retailers with annual revenues between $10 million and $1 billion, demonstrate a substantial gap in the anticipated impact of this law even within the small and midsized segments of the online retail industry.
According to the survey, only 38 percent of small and midsized online retailers with revenues between $10 million and $1 billion project that this possible law would have a negative impact on their profitability. However, the picture changes significantly when comparing projections in the higher versus lower revenue ranges. While 50 percent of executives at companies with annual revenues between $10 million and $50 million project negative impacts on profit, the number drops to 22 percent for executives at companies in the $150 million to $1 billion range. In short, if the MFA becomes law, smaller retailers said they fear the pinch on profitability, while larger retailers indicated they are not as troubled.
What’s the impact on the consumer?
While the survey suggests that less than 40 percent of small and midsized online retailers expect to be hurt significantly by the MFA if it passes, 43 percent of all respondents said they were either somewhat or very likely to consider terminating some online sales in response to the MFA, and nearly all (98 percent) said they would pass along increased compliance costs to the consumer.
Most large retailers, like Amazon.com Inc. for instance, currently have processes in place to address remote sales tax, but many smaller companies don’t. To comply with the MFA, these smaller remote sellers would need to adopt new technologies and processes to automate their transactions, and it appears, this cost of compliance will likely be passed on to the consumer. Further still, smaller retailers may decide enough is enough and opt to terminate their online sales altogether, in order to protect their traditional sales revenues. One way or another, it seems, the consumer will feel the impact.
While the MFA’s prospects of passing have dimmed, the momentum it had earlier, and the continuing interest of the media, major players in the business community, and state governments are sure to keep it among the top tax issues in Washington, D.C., or, at the very least, at the state level. Recently, the Illinois Supreme Court ruled against the so-called “Amazon tax” and called it a federal issue. If this starts a trend of state judicial decisions, perhaps Congress will have to address it sooner, rather than later.
As the debate continues, it is critically important that business owners continue to follow the remote seller tax dialogue and the potential for a veritable sea change in tax obligations, as well as determine how they might ultimately respond to any changes.
For additional information on this topic, view the full survey results or read The Marketplace Fairness Act: Five proactive strategies remote sellers should consider now.