The Marketplace Fairness Act: How it will affect Retailers and Consumers (Part I)

In May of 2013, the U.S. Senate passed a bill called The Marketplace Fairness Act of 2013. As of March 2014, this bill is currently under consideration in the House of Representatives and is believed to have a better than 50% chance of passing. If this new law were enacted, it would allow states to require online retailers to collect sales taxes on purchases made by residents of their state, regardless of whether or not the retailer has a physical presence in that particular state.

The effect of this law would be that retailers that do business online with customers throughout the country would now be required to comply with state and local sales taxes from potentially hundreds of municipalities. There are strong arguments on both sides of this bill.

Reasons to Favor the Marketplace Fairness Act: The authors of this bill used the word “fairness” to emphasize the central argument for enacting it. They say that for too long, online retailers have enjoyed an unfair advantage over main street retailers because they have not had to collect local sales taxes. For example, if you are shopping for a computer or laptop, you could purchase the product from a local store such as Best Buy or an online retailer such as EBay. If the product and price are identical, making the purchase from Best Buy will incur a local sales tax, while buying from EBay would not.

This disparity would seem to place a store like Best Buy at a disadvantage over a mom and pop online retailer with an EBay store. Brick and mortar retailers also contend that customers are using their stores to shop for the product they want and see it up close, then turn around and order it from an online retailer. Not surprisingly, virtually all of the major retailers are in favor of The Marketplace Fairness Act.

In Part II of this series, we will look at the reasons to oppose this act and how this act will affect consumers and retailers.

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