In the last few weeks there has been a lot of discussion (debate) about a bill that just passed through the Senate. The bill in question is called the Marketplace Fairness Act. This act, as it is written now, will attempt to level the playing field between local businesses and online retail stores. Essentially, the bill, in concept, attempts to promote small business exchanges over larger corporation exchanges. (http://www.marketplacefairness.org/bill-text/)
In the past, when you purchased goods online you did not pay a sales tax unless the State that you lived in was the same location in which you purchased the good. With the new law, if passed, the State in which you are to receive the goods or services will collect a sales tax as long as they are part of the simplified sales tax group (currently 24 States).( http://taxes.about.com/od/statetaxes/a/Streamlined-Sales-and-Use-Tax-Agreement.htm)
In addition to the collection of sales tax from online retail stores the bill would exempt small businesses that earn less than $1 million annually from out-of-state sales, and requires states to provide retailers with software to calculate sales taxes based on a buyer’s zip code. States would be allowed to collect taxes on out-of state purchases in six months, to give retailers time to prepare.
Early estimation on the collection of potential purchases online project $23 billion in annual taxes from online sales that presently go uncollected (http://www.huffingtonpost.com/edward-zelinsky/adopt-the-marketplace-fai_b_3238842.html)
Since 1992, States have not be able to collect the sales tax from items purchased online due to a court ruling (http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=504&invol=298) Quill Corp. Vs Heitkamp.
“Quill was a Delaware corporation with offices and warehouses in Illinois, California, and Georgia. None of its employees worked or resided in North Dakota, and its ownership of tangible property in that State was either insignificant or nonexistent. Quill sold office equipment and supplies; but solicited businesses through catalogs and flyers, advertisements in national periodicals, and telephone calls. Its annual national sales exceed $200 million, of which almost $1 million was made to about 3,000 customers in North Dakota. It is the sixth largest vendor of office supplies in the State. It delivered all of its merchandise to its North Dakota customers by mail or common carrier from out-of-state locations.” (http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=504&invol=298)
“Quill argued that North Dakota did not have the power to compel him to collect a use tax from its North Dakota customers. Consequently, the State, through its Tax Commissioner, filed this action to require Quill to pay taxes (as well as interest and penalties) on all such sales made after July 1, 1987. The trial court ruled in Quill’s favor, finding that the State had not shown that it had spent tax revenues for the benefit of the mail-order business.
So far the bill has made its way through the Senate (69-27) and should be argued on the floor of the House within the next few weeks. That being said, if it does pass the House and is signed into law by the President, how will it affect your business?
1.) If your company earns less than $1 million dollars a year you will have an exemption and will not have to charge a sales tax on your goods or services. (online)
2.) If your State does not pay a sales tax (Oregon, Delaware, Montana, New Hampshire, Alaska) than you will not be required to pay the sales tax as long as the good that you are purchasing is not from another State that does have the sales tax.