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As of May 7, 2013

Marketplace Fairness Act:

What businesses need to know
As the Marketplace Fairness Act of 2013 (MFA) picks up momentum in Congress, its no surprise that businesses across the country are trying to gure out what it means to them. At Avalara, were here to help, and hope this summary will help make sense of these developments. If passed, this legislation would grant states the authority to require certain non-exempt remote sellers to collect sales tax, if states adopt specic measures to simplify sales and use tax administration. If passed, the MFA would also broaden states authority to require remote sellers to collect sales tax regardless of whether that business has a physical presence within those states. The Marketplace Fairness Act of 2013 would not override current state and local statutes surrounding product and service taxability, tax holidays, exemptions, or related rates, boundaries and rules. Existing nexus laws would not change due to this legislation. The stated purpose of the Marketplace Fairness Act of 2013 is To restore the States sovereign rights to enforce State and local sales and use tax laws The bill, as currently written,1 would authorize states to require remote sellers to collect and remit sales tax in accordance with state and local laws, as long as those states are are in full compliance with the Streamlined Sales & Use Tax Agreement, or a member of the Streamlined Sales Tax (SST) organization, or implement a minimum set of simplication measures.

Streamlined Sales Tax Member States

According to the legislation, Each member state under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that Member State There are currently 22 full member states that comply with the following: State level administration of sales and use tax collections. Uniformity in the state and local tax bases. Uniformity of major tax base denitions. Central, electronic registration system for all member states. Simplication of state and local tax rates.

What is the bottom line for businesses?

If passed, Marketplace Fairness would add complexity to an already burdensome business process. Remote sellers would have the added burden of meeting sales and use tax collection and remittance requirements in each state into which they sell, and in which they do not currently have nexus.

Uniform sourcing rules for all taxable transactions. Simplied administration of exemptions. Simplied tax returns. Simplication of tax remittances. Protection of consumer privacy.

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SU MMA RY
As of May 7, 2013

Marketplace Fairness Act: What businesses need to know (continued) Non-SST states
For states not members of the SST,2 the minimum simplication measures they must implement prior to exercising the authority that MFA would grant, include: A single entity within the State responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the states. A single audit of a remote seller for all state and local taxing jurisdictions. A single sales and use tax return to be used by remote sellers. A uniform sales and use tax base. All interstate sales should comply with destination-based sourcing rules. Make available information regarding taxability of products and services including any applicable exemptions. Make available software that calculates and applies correct tax rates must be made available to all remote sellers. Once states are members of the SST or implement the simplication measures specied within the legislation, they would be granted authority to require remote sellers to collect and remit sales tax. (Full text of Marketplace Fairness Act)

1 Please note: specics of this legislation (such as small seller exception and implementation timeline) are subject to change. This information is current as of May 7, 2013 2 Including tribal organizations, District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and any other territory or possession of the United States.

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FAQs Marketplace Fairness Act: What businesses need to know

When might Marketplace Fairness go into effect?

Answer: While the potential effective date is indeterminate at this point, some believe the law could go into effect within 12 months. The bill passed the Senate in early May and will now go to the House for a nal vote, if one is called. If the House passes the bill after June 30, 2013, but before October 1, 2013, the soonest any state could start enforcing the laws is April 2014.3 If the bill passes the House and is signed into law by the President and if it does not face legal challenges, the earliest states could implement this would be 1804 days following enactment.

What kinds of sales would not be impacted by this legislation?

Answer: There are several kinds of sales that are not impacted in any way by MFA. Intrastate sales Remote sales, when the out-of-state seller already has nexus Small out-of-state businesses that have remote sales in the prior calendar year of less than the gross remote revenue amount specied in the legislation (currently $1 million, but likely to change in nal legislation); and Sales made into states with no statewide sales tax (Alaska, Montana, New Hampshire, Oregon, Delaware).

Would this law apply to all out-of-state businesses?

Answer: No. Only those sales by remote sellers that do not currently have nexus in a state, and that are not currently required to charge customers sales tax. Other organizations that would not have to collect include those currently exempt from doing so, and those qualifying for the small seller exception. If passed, MFA would not apply to sales by multi-state online retailers that already have nexus within a state and currently collect and remit tax. Those relationships and associated tax obligations would remain in place in accordance with state and local laws. MFA gives states additional taxing authority over remote sales, whether conducted over the Internet, via phone, or mail order catalog. If a state simplies their tax code as specied in the bill, they would be authorized to begin requiring all out-of-state sellers to collect sales tax, according to the destination of purchased products or services. So any out-of-state online retailer or mail order or catalog retailer that does not currently do so, would have to collect sales tax according to the statutes in state where the product or service is delivered.

My company sells into several different states. How do I know which states require me to start collecting sales tax if this passes?
Answer: First, if you dont already know where your company has nexus (and many companies dont have a full understanding), you should talk to a tax expert immediately. Second, if you do not currently have nexus in states into which you sell, and do not collect sales tax on those sales, this legislation could change that, by adding additional tax collection obligations on your remote sales.

Could this law be challenged?

Answer: Yes. Even if this bill is signed into law it may still be challenged on grounds of constitutionality. Legal challenges such as these would likely delay enactment.

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DEFINITIONS Marketplace Fairness Act: What businesses need to know

Remote seller
Any out-of-state business entity that sells into a state in which that seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by this Act. In other words, any out-of-state sellers, including online retailers that did not previously have to collect sales tax, would now be required to collect and remit those taxes.

Streamlined Sales Tax Agreement

An agreement signed by states that have simplied the sales tax administration processes specied here.

Destination-based sourcing
The Marketplace Fairness Act determines sales and use tax obligations using destination sourcing the location where the product or service is delivered, rather than where it originates from. The legislation denes location as the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no location is specied, the remote sale is sourced to the customers address.

Nexus
Nexus is the relationship between a business and a taxing jurisdiction that grants a state authority to impose a tax obligation on a business. It is important to note that MFA would not change nexus laws. It merely grants states additional authority to require out-of-state businesses that do not have nexus to collect and remit sales tax. Depending on the state, nexus can include a physical presence within a state, such as a distribution center or warehouse, or an endless array of other kinds of relationships or systems such as a remote sales-force or a business afliate. What constitutes nexus varies greatly from state to state.

TIMELINE
February 2013
Marketplace Fairness Act announced by bipartisan group of Senators and Congressmen, and led by Senators Enzi and Durbin. Introduced in the House (H.R. 684). Introduced in the Senate (S. 336).

Small seller exception

Under MFA, states would only be able to require remote sellers to collect sales tax if those sellers have gross annual receipts in total remote sales in the United States in the preceding calendar year of $1,000,000.5

April 2013
H.R. 684 referred to House Judiciary Subcommittee on Regulatory Reform, Commercial, and Antitrust Law. S. 336 referred to the Senate Committee on Finance. Senate invokes cloture, which ends debate on the bill and sets up a nal Senate vote.

Online sales tax

One of several terms used to describe Marketplace Fairness or other efforts at the state and federal level to require remote sellers such as online retailers to collect sales tax for the rst time. This term is somewhat misleading since MFA would impact all remote sellers, not just online retailers. These could include outof-state mail order companies or those making sales over the phone. In reality, this law is likely to affect any business making non-tax-exempt sales across state lines.

May 2013
Senate passes the bill with a 69-27 vote. June 2013October 2013 The House of Representatives has until end of the 2014 congressional session to take action, or the bill will need to be reintroduced.

Source: Scott Peterson, Avalara Government Relations Director and former President of Streamlined Sales Tax Governing Board. Amendment 741. 5 Which businesses should be granted an exception from collecting sales tax and how large their remote sales must be to do so, is currently being hotly debated. Small seller exception threshold proposals have been as low as $500,000 and as high as $10 million dollars.
3 4

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We can help.
For more information, visit us at www.avalara.com or call 1-877-780-4848

About Avalara Founded in 2004, Avalara pioneered a service-based platform for sales tax and compliance automation and has been recognized for years as one of Americas fastest growing technology rms. The companys cloud solutions help thousands of customers stay focused on their core businesses by providing automated end to end compliance services including sales and use tax calculation, exemption certicate management, ling and remittance, and a broad array of related services. www.avalara.com