Updated: Jul 15, 2021
A bill to be considered in the U.S. House of Representatives would require state governments across the country to collect sales taxes – in addition to use taxes – from retailers who do business outside of the state they are headquartered in. If the bill becomes law, chances are those extra taxes could be passed on to consumers, who previously have not paid them when purchasing from online retailers and out of state companies.
The Marketplace Fairness Act of 2013 passed in the U.S. Senate in May of this year, and is now being considered by the U.S. House of Representatives. According to Avalara, a Solution Systems Inc. partner who manages sales tax, filing compliance and other business tax issues, President Obama previously had stated he would sign the bill when and if it lands on his desk.
Though the final components of the bill are still in flux, the most recent version presents some scenarios that could affect the national marketplace. Representatives from U.S. Senator Dick Durbin’s office have said the bill is currently under review in the U.S. House Judiciary Committee and has not yet reached the U.S. House for consideration.
The complicating factor is that tax rates vary by state, and some states don’t currently implement a sales tax.
Companies that do business outside of the states they are located in, whether that business is done by phone, mail-order or on the internet, would be required by the federal government to implement sales and use taxes if sales reach $1 million or more, according to Avalara.
If passed, states that don’t currently have sales tax, which include New Hampshire, Delaware, Alaska, Montana and Oregon, would be required to collect and pay sales tax when doing business anywhere in the country.
Meanwhile, states would retain their ability to tax at current rates.
In addition to higher taxes for business and possibly consumers, what is more confounding is how businesses will keep up with tax calculations for businesses (and consumers) in states who don’t have the same tax requirements.
“I see this as a nightmare for businesses to deal with,” said Jim Uszler, government affairs consultant at the GOA Regional Business Association. Uszler added that the organization has not taken a formal stance on the proposed legislation.
If the bill is to pass, automated technology is available to handle business tax compliance no matter where you do business, so it doesn’t have to be a nightmare.