Earlier this week, Congressman Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act of 2015 (“RTPA”), a bill modeled on the most recent version of the Marketplace Fairness Act (“MFA”) and that also makes several significant changes to it.
Foremost among these changes, the RTPA alters the MFA’s small business exemption, which exempts remote sellers with annual gross receipts of $1 million or less. Under the RTPA, the safe harbor would initially be set at $10 million and be reduced to the MFA’s $1 million threshold over three years. Unlike under the MFA, the small business exemption would not apply at all to sales through electronic marketplaces, such as those made by independent sellers through Amazon or Etsy.
I recently purchased a gingham suit from a Rhode Island-based tailor on Etsy and was not charged sales tax. Fortunately for me, the jurisdiction in which I reside does not tax clothing. Fortunately for my tailor, he does not need to know whether it does. For small businesses selling niche products, the ability to sell online without having to account for arcane nuances of sales tax law has gone a long way to keep their businesses viable.
The RTPA would change this. By excluding sales through online marketplaces from the small business safe harbor, the RTPA could entail high compliance costs for many small businesses. For a small business like my tailor, the compliance cost could easily deplete an already small profit margin. However, several provisions of the RTPA might help to ease these compliance costs.
Specifically, the RTPA requires, as does the MFA, that states provide automated sales tax compliance software free-of-charge to remote sellers. It also goes a bit further to shift compliance costs to the states, requiring that they bear the cost of software installation, setup, and maintenance. In addition, the RTPA would prohibit states from auditing remote sellers with annual gross receipts of less than $5 million and imposes notice requirements before qui tam suits may be brought against any remote sellers.
The RTPA appears to be the latest sign that the time is approaching when online shoppers will be forced to pay the piper. It is yet to be seen how great a cost online retailers will bear for the states to get their pound of flesh.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are online retailers the new “mom and pop”? Should online retailers be relieved of compliance burdens imposed on brick-and-mortar retailers?
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