Internet Tax Impact On Small Businesses

Filed in Internet Marketing by on June 17, 2013 0 Comments

US CapitolIf you have a web based business than hopefully you already know about the new Internet tax bill being introduced called the Marketplace Fairness Act. It recently passed in the U.S. Senate and has moved to the House of Representatives for consideration.  There has been a lot of  discussion around how this will impact businesses both offline and online, and even consumers. While it is still hasn’t been adopted into law, there are already sides being taken but the question remains, who wins?

What is the Marketplace Fairness Act?
The Marketplace Fairness Act (MFA) is  a bill which would require online businesses that have annual online sales over $1 million to collect sales and use tax on consumer purchases. This bill was introduced on April 16th, 2013 and passed in the U.S. Senate on May 6th, 2013 by a vote of 69 to 27. It was sponsored by Senator Michael Enzi, a Republican from Wyoming. There have been other bills that were introduced and some that have passed, but this new bill is meant to be an improvement to current laws regarding online sales.

The current law regarding online purchases only require taxes to be collected if the company has a physical presence such as a storefront or warehouse in the state it operates in. If the Marketplace Fairness Act were to become law, then a physical presence wouldn’t matter as sales and use tax collection would be based on the consumers location and not the business.

What does it all mean?
At the time of this post, the bill has been passed onto the House of Representatives and not yet a law. It is possible that the House votes against it or the President veto’s it. But if it does become a law, it can take quite some time for it to be enacted because each state will need to decide how they will adopt, manage, and enforce the new law.

As mentioned above, this bill, if passed, would only pertain to online businesses that have gross annual sales that exceed $1 million. So many small businesses may not be affected.

Currently the burden of reporting any sales or usage tax for online purchases falls upon the consumer to report in their income taxes. But this has always been difficult to enforce and most people don’t follow this. With the Marketplace Fairness Act, the sales and use tax collection falls to the business to collect. This will be a major burden for the business as it will take even more time away from focusing on the business. Businesses, even online businesses, have enough to manage but this new bill will only add more work without any benefit for them.

If you would like to keep track of the bill, you can follow the progress on Congress.gov

Tags: , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *