Tax Alert

Senate Passes Marketplace Fairness Act of 2013

(May 6, 2013)

The U.S. Senate passed S. 743, the Marketplace Fairness Act of 2013, today by a vote of 69 to 27. S. 743 would give states the power to require out-of-state sellers not physically located in the state to collect taxes on sales to individuals who are located in the state. The bill includes a token exception for smaller remote sellers, those with less than $1 million in total out-of-state sales.

Under current law, a remote seller can’t be required to collect sales tax in another state unless the seller has a physical presence in the state.

Although the common perception is that the primary effect of the act would be on consumers, the greater impact might be on businesses required to comply with the legislation. If the bill becomes law, all multistate businesses would have to consider the taxability of the sales of their products and services in all states, consider making significant updates to their order taking, adjust their billing and administration systems, and plan for increased tax-return compliance and audit burdens.

In order to collect tax from remote sellers without a physical presence, states will need to either be members of the Streamlined Sales and Use Tax Agreement, which requires states to agree to implement certain uniform sales and use tax laws, or otherwise agree to adopt uniform administrative and taxability measures to simplify their sales tax laws.

Passage of the bill by the U.S. House of Representatives is not certain. President Barack Obama has indicated his support for the legislation.

For now, we recommend that multistate businesses monitor the progress of this legislation through Congress. If, during the next few months, it appears the bill is likely to become law, businesses should review their billing systems and tax-compliance contingency plans.


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