Many e-commerce business owners are buzzing
about the potential passage of the Marketplace Fairness Act. In case you
haven’t heard of it, the MFA will require that companies that are selling
products online charge sales tax to their customers.
There are a number of
rumors flying around about how the new law will affect the online marketplace.
Here are ten facts about how the MFA will change the e-commerce landscape.
Businesses
with over $1 million in annual revenue
Currently, the Marketplace Fairness Act revenue
threshold is set at $1 million annually. This means that businesses with yearly
revenue that crosses this threshold will be required to charge sales tax and
pay taxes in all the states where they have customers.
Businesses
with under $1 million in annual revenue
Online businesses with less than $1 million in
annual revenue won’t be affected as much by the passage of the MFA. Smaller
businesses will not be required to charge sales tax and pay taxes in different
jurisdictions if they stay under the revenue threshold.
Rules
about taxes in different states
One of the hot-button issues with the MFA is the
complex process of paying taxes in multiple states. Online business owners are
concerned because they will be required to abide by the tax laws of nearly
10000 jurisdictions.
State
by state implementation
Currently, the Marketplace Fairness Act includes a
provision that makes it optional for states to implement. So if a state chooses
not enact the law, they will not collect the tax revenue and online business
owners with revenue that exceeds the $1 million mark will operate as they had
previously.
Simplifying
the tax payment process
To help simplify the tax payment process, states
who implement the law will be required to provide special tax software to
business owners. This software will help make paying taxes in other states a
less cumbersome process.
What
about big businesses like Amazon?
Amazon is actually backing the MFA, which may seem
surprising. But all evidence points to the fact that Amazon was eventually
planning to start charging sales tax to customers anyway. The online landscape
is changing and fewer states are allowing for tax-free online sales.
Leveling
the playing field
Proponents of the MFA argue that it levels the
playing field for stores with a physical presence. Brick and mortar businesses
are already charging customers sales tax for their purchases, so why shouldn’t
online businesses be forced to do the same?
Potential
tax penalties
The complex tax process is one of the biggest
sticking points of this particular Act. Even with the free tax software that
simplifies the process, paying taxes in 46 different states is a highly complex
issue. Small business owners are concerned that they will incur severe
penalties if they make a mistake – and rightfully so! It would be worth it to sit down with a small business lawyer to
make sure you are following everything correctly.
Risk
of being audited
With the complicated tax payment process comes
another risk: the heightened risk of being audited by the IRS. As mentioned
previously, the new tax payment process has plenty of room for error. So the
likelihood of a business being audited increases.
Increasing
state revenue
One important outcome of the passage of this new
law is the increase in state revenue. It will be beneficial for states facing a
budget shortfall because they will be able to collect taxes from online
business owners who likely wouldn’t have had to pay taxes there previously.
The Marketplace Fairness Act is one of the
most hotly debated laws of recent times. As a result, there are a number of
rumors being spread about how it will actually affect online businesses. Hopefully
these ten points helped to clear things up a bit!
Labels: Articles, Business
