There is a new push by the Senate with the Marketplace Fairness ACT (MFA) to require online retailers to collect and pay sales tax on all of their internet sales. Currently, based on the pivotal Supreme Court case, Quill vs. North Dakota 1992, online retailers are only required to collect sales tax on retail sales in those states where they have a physical presence or agents.
The argument for requiring online retailers to collect sales tax on all retail is not charging consumers sales tax gives etailers a competitive price advantage over retailers that have a physical location and are required to collect sales tax. Currently most states require tax payers to report their online purchases made without paying sales tax and remit the appropriate use tax when they file their annual state income tax return. However, taxpayer compliance rate is low. Therefore, from a local government standpoint, requiring etailers to charge sales tax on all internet sales is a new and desperately needed revenue source.
On the other side, online etailers are asking why they should be burdened with collecting, filing and remitting sales tax in over 10,000 taxing jurisdictions. When a customer buys a product from a physical store, the clerk does not ask the customer where he or she lives. They collect the tax where the sale takes place and they do not have the burden of calculating and remitting sales tax based on where the product will be used.
Though compliance with this proposed new law is limited to companies with over $500,000 ($1,000,000 exception for the House version) in annual sales, it is argued that such extensive sales tax filling for smaller companies that are required to comply put an unfair administrative burden on their organization. Additionally, having personally been through multiple sales tax audits, I know what a burden they can be on an accounting department. If an online retailer had to collect sales tax from all taxing jurisdictions, there is a chance that the retailer could have multiple audits at the same time.
So how is the sales tax issue going to turn out?