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Marketplace Fairness Act: What You Need to Know

Here's a look at what you need to know about the Marketplace Fairness Act and how your business may be affected.
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The Marketplace Fairness Act of 2013, a law that would make it easier for states to collect sales tax from retail sales online, passed a major hurdle last week when it was moved one step closer to law by garnering bipartisan support from a group of 75 Senators.

So what does this mean for you and your business? We thought it might be helpful to highlight some of the major points being covered in the media. Here's some links to what you should know:

This issue of online sales tax hasn't been raised since 1992, when the Supreme Court ruled that out-of-state businesses do not have to collect and remit sales tax where they don’t have a physical presence. The issue resurfaced because now many retail businesses have one hand in the brick-and-mortar world and another in the Web, as this NPR report explains.

Under the new legislation, online retailers will be required to collect state and local sales taxes from all U.S. customers. Currently, retail sites only collect sales taxes from customers in states where their companies operate (other customers are expected to pay the sales taxes on their own, but they rarely do).

But there are a few complications, according to a recent story in the WSJ. There is even a question of what items can be taxed and where.

"Candy bars are taxable in New York, but not in New Jersey. In Texas, large pretzels are tax-exempt baked goods, but small pretzels are taxable snacks. Iowa charges a sales tax on decorative pumpkins but not edible ones. Rhode Island taxes soft drinks but not bottled water."

Proponents of the legislation argue that it will level the playing field between brick-and-mortar retailers and online sellers. But many huge e-tailers are against the proposed changes, Inc. reported last week, and some, such as eBay, are offering up alternative solutions. 

But, as it turns out, massive e-commerce sites might not have much to worry about. A case in point: Amazon, long one of the bill’s loudest opponents, changed teams and is now one of the MFA’s greatest supporters.

A recent New York Times article suggests why. Amazon, according to the piece, may actually stand to gain from the new legislation. Now that its revenue has grown to more than $15 million, any additional costs borne of bringing in new staff or other support systems to comply with the law won’t bite as hard as they once would have. The online retailer could even make money by collecting tax for other retailers. Amazon also knows that some businesses just over the $1 million threshold may throw their hands in the air and quit the e-commerce game altogether--in which case Amazon would stand to gain new customers.

Last updated: Apr 29, 2013

JULIE STRICKLAND | Staff Writer

Julie Strickland covers start-ups, small businesses, and entrepreneurial endeavors of all kinds for Inc. Her work has been published in Brooklyn Based and City Limits in New York, the Free Times in Columbia, SC, Real Travel Magazine in London, and Daegu Pockets in South Korea. She lives in New York City.




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