In 2013, lawmakers in Congress introduced the Marketplace Fairness Act, a plan to compel Internet retailers to collect state and local sales taxes for out of state customers. Last session, the Act passed the Senate but did not make it through the House of Representatives. Earlier this year, the bill was reintroduced with support from lawmakers in both parties.

How the Marketplace Fairness Act would change Internet Commerce

Presently, online retailers only have to collect sales taxes if they have a physical presence within the state in which the goods were purchased. The Supreme Court set this standard in the early days of the Internet in its Quill v. North Dakota ruling (circa 1992). Consumers are required to pay sales taxes in the 45 states which impose them, but presently they are responsible to pay them on their own, and very few ever follow through. The Marketplace Fairness Act would change the law to require Internet retailers to collect the tax on customers at the point of sale, regardless of whether or not they have a physical presence in the state.

Arguments in Favor of the Marketplace Fairness Act

Proponents of the Marketplace Fairness Act say (as the name of the bill implies), that it’s a matter of “fairness.” If brick and mortar stores have to collect sales tax, why should we not require online retailers to do the same? Supporters also point out that this bill does not impose any new federal or state sales taxes; it only requires online retailers to collect sales taxes that are already due. Major retailers such as Walmart are heavily lobbying for this bill. Amazon, the Internet’s largest retailer, is also on board with this legislation.

Arguments against the Marketplace Fairness Act

Opponents of the Marketplace Fairness Act warn that taxing online sales threatens to diminish one of the few growing segments of our economy. They point out that this bill sets a dangerous precedent in the expansion of taxing authority by requiring online retailers to collect sales taxes in over 9600 state and local jurisdictions, all with their own unique tax schedules. This, they say, would put an unreasonable burden on smaller retailers and make it nearly impossible to comply with all these jurisdictions. This could result in many small online retailers going under. While most major corporations are in favor of the Marketplace Fairness Act, eBay is the one notable exception.

The chances of the Marketplace Fairness Act becoming law remain unclear. The November 2014 midterm elections gave Republicans a new majority in the Senate and expanded their majority in the House. Since the GOP (and their base) generally opposes tax increases, conventional wisdom would indicate that it faces an uphill battle. On the other hand, most corporations support this legislation, and this is bound to sway the opinions of many key GOP lawmakers.

For Internet retailers, passage of this bill would mean major changes to the way you interact with your customers. To remain in business, you would need to ensure you are in compliance with state and local taxing authorities. For further details on how this law may impact your business, speak with your local tax professional.