The Marketplace Fairness Act and small business

Congress is currently considering the Marketplace Fairness Act, a federal law that would require online retailers to collect local tax on product sales, no matter where the company is located. The bill was drafted in response to complaints from brick and mortar stores that online retailers like Amazon and others have an unfair advantage because they are not obligated to collect sales tax.

It does make sense that consumers in some states would opt to shop online so they don’t have to pay sales tax, particularly for large purchases like electronics and appliances. While it seems that online giants like Amazon can certainly afford to collect tax, the bill would also affect small businesses, including those who fulfill orders for larger sites.

In 2002 the Supreme Court ruled that states and localities could only compel online retailers to collect tax if the retailer had a presence in that state. But physical retailers continued to lobby for change. The Marketplace Fairness Act would provide a means for remote sellers like websites and catalogues to collect state and local tax.

The law would also require states to simplify their codes in order to facilitate tax collection by the retailers, a change welcomed by retailers like Amazon, which now supports the bill. Fortunately for small businesses, the law exempts business with less than $1 million in annual remote sales.

As we’ve discussed before, there are many recent changes to the federal tax code for both businesses and families. If you are concerned about your business and its finances, it may be wise to speak with an attorney. He or she can explore the implications for your business.

Source: Small Biz Trends, “The Marketplace Fairness Act: What You Need to Know,” Feb. 20, 2013



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