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December 15, 2011

Where Will Small Businesses End Up In The Marketplace Fairness Act?

state internet sales taxIt was only a matter of time that the rising arc of online retail sales, which are estimated to grow to 8% of the US economy ($250Billion!) by 2014, and the falling state tax base would mean that one day Congress would take a hard look and realize that they were losing out on an awful lot of potential sales tax revenue from internet sales.

Currently, businesses are only required to collect sales tax from customers who live in states where the business itself has operations.  So, for instance, if your bakery is based in New York and you ship frozen croissants to Hawaii then you wouldn’t have to collect sales tax.  But for anyone you shipped to in New York state you would be required to collect the tax and pass it along to your good friends in Albany.

The Marketplace Fairness Act, which was introduced into Congress last month, would create a federal online sales tax which would require businesses to collect sales tax from every state that they have internet sales from.

In a nutshell the law would

Require remote sellers and single and consolidated providers to collect sales and use taxes pursuant to the applicable destination rate, which is the sum of the applicable State rate and any applicable rate for the local jurisdiction into which the sale is made.

Before you start wringing your hands with worry about the amount of paperwork this will add to your already overburdened plate, there is a glimmer of good news.  The way the bill is currently written, there is an exemption for small businesses that make less than $500,000 annually.  Known as the Small Seller Exception, the prior year’s gross sales would be used as the determinant as to whether a small business fell under this new law or not.

As of right now this bill is making it’s way through Congress though it’s getting support from representatives and even some big internet players like Amazon.com.  Given the current economic conditions though I won’t be at all surprised if this passes.  The big question is whether the Small Business Exemption will remain intact!   What do you think about this proposed law?  How would it impact your business?

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