Sales Tax Slice: State Tax Pros Voice Concerns Over U.S. Online Sales Tax Legislation

The Marketplace Fairness Act (S. 743) cleared a significant legislative hurdle when the Senate approved it a few weeks ago, but its prospects for passage remain uncertain now that it is pending in the House. We polled members of the BBNA State Tax LinkedIn Group on what they believe the MFA’s fate will be.

Most respondents were doubtful of the legislation’s prospects. A few highlighted changes to the bill that they would like to see considered. 

Among them was prominent state tax law expert and BBNA State Tax Portfolio author Jack Cronin, who listed several areas he would like to see better addressed by the bill. These include reimbursements for added compliance costs, more standards for tax base conformity, clear rules regarding the multistate taxation of service businesses, tighter rules regarding localities, and a much higher safe harbor threshold, such as $10 million in annual sales.  

When asked whether he would consider requiring both a minimum sales and minimum transaction threshold as the basis to impose sales tax via remote sales, he said he preferred a high annual total sales threshold.  

For one practitioner, the problem is not with the safe harbor threshold, but the way it is applied.

Garry Fujita , partner at Eisenhower Carlson PLLC, pointed out that the small seller $1 million threshold is a “look back” test, because a taxpayer would pay sales tax for the tax year after it first exceeded $1 million in remote sales, rather than the year in which the sales were made. To ease compliance issues, he suggested triggering collection responsibilities at the point that the seller exceeds the threshold, or trigger compliance requirements after a taxpayer has three consecutive years that exceed $1 million in remote sales.

One commenter said the safe harbor threshold should be determined by the states.

Sylvia F. Dion the founder and managing partner of SALT consulting firm PrietoDion Consulting Partners LLC and contributor to BBNA state tax, thinks the bill could make it out of the House only if it was significantly revised. She suggested incorporating some provisions of its predecessor, the Marketplace Equity Act from the 112th Congress, such as by giving states the option to enact a threshold exempting sellers with remote sales of $100,000 or less to a state – making the threshold based on state-by-state sales rather than an aggregate sales threshold.  She also pointed out that if states set their own threshold, it would be easier to base the threshold on taxable sales rather than total sales.

And how do taxpayers go about forcing the states to comply with the MFA’s simplification requirements?

Stanley Kaminski , partner at Duane Morris LLP, pointed out that there is no compliance mechanism other than suing the state for violations, and he found the $1 million sales threshold burdensome for sellers that might have only $500 in sales to a particular state.

Will the MFA pass? How can the bill be improved? Take our poll and comment here.

By Rebecca Helmes

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