Sales Tax Slice: The MFA and ITFA Combined: A Match Made in Heaven or Love on the Rocks?

Tax Legislation Personals: Federal sales tax collection bill seeks long-term relationship with other bill addressing Internet transactions. Only serious suitors need apply.

The Marketplace Fairness Act (MFA) has been debated, reported and blogged about for a long time. After playing the town, it’s looking to settle down with a serious mate who intends to stick around.  Thankfully, a group of senators are assuming the role of matchmaker.  Introduced July 15th, the Marketplace and Internet Tax Fairness Act (MITFA) merges the objectives of the MFA and ITFA into one bill, S. 2609. 

As a quick refresher, the MFA, which passed the Senate in 2013, would give states authority to compel online retailers in other states to collect sales tax on Internet-based sales on their behalf. The bill is currently pending in the House. A version of the ITFA is currently in effect and prohibits states from imposing taxes on Internet access charges, but it is set to expire Nov. 1, 2014.

The MITFA includes the majority of the same provisions included in the Senate version of the MFA and the current version of the ITFA. However, there are a few notable changes. Regarding the MFA, the MITFA:

  • clarifies that the minimum simplification requirements of a single entity, audit and sales and use tax return applies to all remote sales sourced to a state;
  • requires software for remote sellers to be updated with any changes to products and services exempt from tax—previous versions  of the MFA only required updates to reflect rate changes;
  •   requires 90 days notice to remote sellers and certified software providers of any change to products and services exempt from tax, instead of just notice of a rate change; and
  • prohibits states from exercising authority granted by the MFA for one year after the date of enactment.

The MITFA would extend the ITFA, as well as the grandfather clause under the ITFA, for 10 years to 2024.

Separately, the MFA and the ITFA have faced their own hurdles in Congress. Since May 2013, the MFA has been pending in the House, not showing much momentum for passage.   The most recent development occurred in September 2013 when Bob Goodlatte, House Judiciary Committee Chairman, outlined his own principles for the online sales tax legislation. Goodlatte’s principles, however, signaled a departure from the bill passed by the Senate.

Perhaps due to its impending expiration date, the ITFA has seen more momentum. Interestingly, Goodlatte has pushed the extension of the ITFA, sponsoring the Permanent Internet Tax Freedom Act, which would permanently ban taxes on Internet access. Unlike the MFA, the Permanent Internet Tax Freedom Act passed quickly in the House on July 15th.  But, the Senate is unlikely to pass the permanent ban, instead, preferring  a short-term extension, until the House shows willingness to pass the MFA or MITFA.

The MITFA seems like a good compromise for both sides, but with the House’s continued opposition of the MFA, the passage of both Acts in one bill seems like an even greater feat. We’ll be watching, and of course, blogging. 


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