Earlier this year, several members of the Senate introduced the Marketplace Fairness Act of 2015 (MFA), legislation similar to the 2013 MFA proposal. Essentially, this legislation grants states authority (should they meet certain streamlining criteria) to require non-exempt remote sellers to collect sales tax.
The bottom line: If passed, the MFA would broaden state authority to require remote sellers to collect sales tax regardless of whether that business has a physical presence within those states.
The MFA would not override current state and local statutes surrounding product and service taxability, tax holidays, exemptions, or related rates, boundaries and rules.
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The bill would authorize states to require remote sellers to collect and remit sales tax in accordance with state and local laws, as long as those states are in full compliance with the Streamlined Sales and Use Tax Agreement, or a member of the Streamlined Sales Tax (SST) organization, or implement a minimum set of simplification measures detailed below.
According to the legislation, "Each member state under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception...to collect and remit sales and use taxes with respect to remote sales sourced to that Member State..." There are currently 23 full member states that comply with the following:
For states not members of the SST, the minimum simplification measures required prior to exercising the MFA-related authority include:
Once states become members of the SST or implement the simplification measures specified within the legislation, they would be granted authority to require remote sellers to collect and remit sales tax.
We've taken the time to provide short answers to some of the most commonly asked SST questions.
Answer: According to the legislation, a state is authorized to require a remote seller to collect sales and use taxes "...only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year, in excess of $1,000,000."
Answer: No. The legislation only impacts those out-of-state or remote sellers that are not subject to the small seller exception, are not currently collecting sales tax, and are selling into states that have instituted streamlining efforts.
If passed, MFA would not apply to sales by multi-state online retailers that already have nexus within a state and currently collect and remit tax. Those relationships and associated tax obligations would remain in place in accordance with state and local laws.
MFA gives states additional taxing authority over remote sales, whether conducted over the Internet, via phone, or mail order catalog. If a state simplifies their tax code as specified in the bill, they would be authorized to require certain out-of-state sellers to collect sales tax based on the destination of purchased products or services (the location of the buyer).
So any out-of-state online retailers or mail order or catalog retailers that do not currently collect sales tax could have to do so according to the statutes in the state where the product or service is delivered if the transactions are sourced according to the legislation.
Answer: There are several types of sales that are not impacted by MFA.
Answer: First, if you don’t already know where your company has nexus (and many companies don’t have a full understanding), you should talk to a tax expert immediately.
Second, if you do not currently have nexus in states into which you sell, and do not collect sales tax on those sales, this legislation could change that by adding additional tax collection obligations on your remote sales.
Answer: Even if this bill is signed into law it may still be challenged on grounds of constitutionality. Legal challenges such as these would likely delay enactment.
For more information, please refer to the full text of the Marketplace Fairness Act legislation
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