October 20, 2014

The Marketplace Fairness Act: What You Need to Know

Marketplace Fairness ActThe proposed Marketplace Fairness Act requiring online sellers, no matter where they are located, to collect local tax on retail sales is gathering strong support in Congress and among retailers.

The law affects not just big companies like Amazon but small businesses including affiliate marketers for Amazon and other online retailers, says Geno Prussakov of the Affiliate Marketing Blog.

What the Marketplace Fairness Act Says

According to attorney Robert W. Wood, an expert on taxation, the proposed legislation offers a simplified means for the 45 states and 7,600 local sales tax systems nationwide to compel online or catalog retailers called “remote sellers” to pay local tax.

A 2002 U.S. Supreme Court ruling in Quill vs. North Dakota held that states can require remote retailers to collect sales tax from customers only if the retailer has a presence in the state.

However, brick and mortar retailers who consider the lack of sales tax on many online sales an unfair competitive advantage continued to lobby for change.

The Amazon Tax

Nine states further complicated the issue recently by passing so-called “affiliate nexus taxes” also sometimes called the “Amazon tax.” These states include Arkansas, California, Connecticut, Georgia, Illinois, New York, North Carolina, Pennsylvania, and Rhode Island, with other states reportedly considering similar measures.

The tax requires any remote retailers with annual sales in the state exceeding $10,000 a year to collect tax if the sales were referred by an affiliate living in the same state.

In many cases, remote retailers have chosen to simply terminate relationships with affiliates in nexus law states, a measure so-far affecting about 75,000 small businesses, Prussakov estimates.

What Others Think

From the perspective of affiliate marketers like Prussakov, the new law, if passed, will be a good thing since it requires remote retailers to collect sales tax, where appropriate, at the time of the transaction just as local retailers do.

Amazon is also apparently now behind the law, which requires states to first simplify their own tax codes to make compliance easier for remote retailers.

Prussakov says the law essentially takes affiliate businesses out of the equation by making it irrelevant where sales referrals originate.  However, others are concerned the law will still adversely affect small businesses that do retail online.

Despite another caveat in the bill exempting businesses with less than $1 million in annual remote sales from compliance, Ebay, the online auction company that works with small online sellers, is still concerned that small businesses will be hurt, reports Chris Morran of Consumerist.

11 Comments ▼

Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Editor for Small Business Trends. He is a journalist and social media networker with more than a decade of experience in the traditional newspaper business before moving to the digital world. He was the former community manager of BizSugar and the former community editor at AllAnalytics, a site dedicated to professionals in the business intelligence and analytics community.

11 Reactions

  1. What many business owners need to know modern technology freely available eliminates the burdens clung to since 1992. It’s time to let go. Innovation now provides a much, much simpler solution.

    Internet savvy shoppers and merchants all agree that API protocol technologies processing dozens of variables easily provides real time shipping at checkout processes to over 40,000 different zip codes. Real time shipping has been a win win for merchants, shippers and consumers keeping pricing fair and competitive ultimately creating new markets and opportunities.

    Today the very same API technologies freely and seamlessly provide automated tax processing for any merchant to a mere 10,000 tax jurisdictions. Free automated tax processing is actually a win win for consumers, merchants and local governments keeping pricing fair and competitive ultimately creating new markets and opportunities.

    Basic economics teaches us competition benefits consumers providing a strong supply of goods and services lowering demand and prices. I personally find it interesting that opponents of this legisltaion already using API technologies to deal with complexities of shipping (for some time now) all of a sudden find it too burdensome when it know challenges their only real market advantage; false tax free pricing. It is clear to me, a small business owner benefitting from automated tax processing, that a few well funded influential companies are frightened of new efficiencies, opportunities and competitiveness.

    The MFA simply grants States’ rights to collect existing sales/use tax already due in 45 states. The MFA encourages equal application of tax policy providing small businesses with free software, simplified tax policy standards, and a fair and competitive marketplace. Consumers benefit from lower pricing, and tax jurisdictions efficiently receive their honorable sales/use taxes already due. That’s a trifecta in my book.

    I strongly support, and urge Congress to immediatley pass the Marketplace Fainess Act.

  2. @Stan Wilson. This piece of legislation is a double edged sword. So what about bloggers like myself who rely on affiliate marketing as a source of income? I will tell you: that money will be cut off. Interesting how there is no discussion here on this extremely important outcome.

    Read more here: http://capitolweekly.net/article.php?_c=z350ecbb2ux7ic&xid=z32y3v1x0lxh9o&done=.z350er7st5z7ni

  3. Does this website only post comments that support the issues expressed in their articles? What happened to freedom of speech and showing all sides of an issue?

    • Hi Rox, your first comment was awaiting moderation. There was no censorship due to the position you took. It’s simply that we get a lot of comments, and we review every single comment manually to make sure they are legitimate and not spam. Otherwise we get spammed to death. :)

      – Anita Campbell, Publisher

  4. My concern is how am I going to file retail sales tax to 50 states? This is really another tax on small business owners, who already pay more through self-employment tax. Will we pass the sales tax on to the consumer – yes. But we will have to comply with 50 states different tax codes, while brick and mortar retailers only comply with one – the state they are in. Everyone thinks that internet retailers have an unfair advantage over brick and mortar retailers, but you are forgetting that the majority of them have online stores as well – they are both brick and mortar and internet retailers – so THEY have the advantage right now.

    • Modern technology currently fdreely available seamlessly calculates, collects and remits sales tax for all merchants. 24 SSUTA States have already enacted simplification standartds enabling such technology to elimiante all manual filing procedures for merchants. The legislation specifically mainatains prior to becoming granted collection authority, states much enact similar simplification standards. Many non-SSUTA states are currently undergoing the process so they are in compliance with standards set forthion the Bill when it passes in the near future.

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