Sales Tax Slice: Why the MFA’s Free Software Might Be a Costly Proposition

The best things in life are free, goes the old refrain. That’s certainly true of love, joy, and laughter. But what about sales tax software provided to remote sellers courtesy of the Marketplace Fairness Act (S. 743)?

The federal legislation would allow states that simplified their sales tax regimes to impose sales tax on remote sellers. To accomplish this, the legislation would require states to give remote sellers free software to calculate the sales and use taxes due on each transaction, and file sales and use tax returns. The states would also be required to regularly update the software, to reflect rate changes.

The proposal has the backing of some software companies. One company says on its Web site that the cost of sales tax software and services would not be a factor in collecting sales tax from remote sellers, because their product is completely automated. And the sales tax tool is web-based with rate information being continually updated, so users wouldn’t have to pay for software upgrades.

But remote sellers would be wise to consider other factors in their cost calculations. Time and resources would have to be spent integrating the software into their business operations. This could be further complicated if different states provide their own software programs. 

Then, there are the states that may not have simplified their sales tax laws as required by the MFA. Doing business in one of these states could require the use of two or more different software systems for sales tax collection.

The MFA has languished in the House without a hearing since its Senate passage a few months ago. In the meantime, the question of how much it will cost remote sellers to acquire and integrate a software system if the MFA is enacted is unknown. But it would be reasonable to assume that it won’t be free.