Tax & Accounting Blog

Marketplace Fairness Act Q&A

Indirect Tax, ONESOURCE, Sales and Use Tax, Sales Tax Nexus May 9, 2013

What is the Marketplace Fairness Act?

The Marketplace Fairness Act grants states the authority to enforce state and local sales and use tax laws on remote sellers that meet a sales threshold (currently set at $1 million of remote sales).  In order for the states to be granted this authority, they must meet minimum simplification requirements.  States that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA) meet the simplification requirements.

 

What is the status of the Marketplace Fairness Act?

The Marketplace Fairness Act was passed by the Senate on May 6, 2013 on a 69-27 vote.  The bill must still go through the House of Representatives.

What is the Streamlined Sales and Use Tax Agreement (SSUTA)

In March 2000, the Streamlined Sales Tax Governing Board was created to find solutions for the complexity in sales tax systems.  In two well-known U.S. Supreme Court cases, Bellas Hess v. Illinois and Quill Corp. v. North Dakota, the Court ruled that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state.  The Court further ruled that the existing system was too complex to impose on a business that did not have a physical presence in the particular state.  The Court said that Congress has the authority to allow states to require remote sellers to collect the tax.  As a result, the purpose of the Streamlined Agreement is to simplify and modernize sales tax administration in order to reduce the burden of tax compliance paving the way to ask Congress to remove the physical presence nexus standard.

What are Thomson Reuters plans regarding the Marketplace Fairness Act and the Streamlined Sales and Use Tax Agreement?

We have been closely monitoring the activity of the Streamlined Sales and Use Tax Project over the last 10 years.  Law changes administered by the states as they transition to the SSUTA rules have been consistently supported within Indirect Tax Determination.  These include jurisdiction sourcing changes, product taxability changes, and sales/use tax rate changes.  Thomson Reuters ONESOURCE Indirect Tax Research and  Content team undergoes a thorough SSAE 16 Audit each year ensuring that our content is accurate, complete, and timely incorporating all changes by state and local jurisdictions, including SST Full-Member, Associate Member, and Non-Member tax jurisdictions.

As legislation like the Marketplace Fairness Act gains the necessary momentum, we continue to evaluate our role in serving current and future customers.  We are actively considering our options regarding SSUTA certification of our software.

How can your business prepare for the Marketplace Fairness Act?

There are several key actions that can get you and your business ahead of the game.

  • The most important first step is to determine your exposure by calculating/estimating your remote sales.
  • If you are close to or exceed the $1 million threshold, you may want to consider your options for complying with the potential regulations.
  • If you are utilizing an automated tax solution, you likely have everything for your expanded liability.  If you haven’t utilized an automated solution, keeping track of the over 14,000 tax authorities and numerous product taxability decisions is burdensome.  Automating the decisions via a tax engine integrated with your accounting system gives you the control and accurate tax decisions you need to handle your new compliance burden.