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Online Sales Tax Bill Could Help Chains With Taxes, Too

Written by Frank Hayes
April 24th, 2013

Online sales taxes are marching toward reality much faster than anyone would have expected even a month ago. The “Marketplace Fairness Act,” which would allow states to collect sales taxes through online retailers even if the merchants don’t have physical operations in those states, is being debated in the U.S. Senate this week after being fast-tracked to avoid the Senate Finance Committee, where every previous version of the bill since 2001 has died.

One key element of the bill that won’t relieve the tax pinch but should simplify the implementation: A state can’t start requiring collection of the taxes until it provides free software that nails down all the complexities of that state’s sales tax structure, including automatic calculation of what rates are owed on which products for any location in the state.

On Monday (April 22), the Senate voted 74-20 to begin floor debate on the bill. That margin suggests the bill will eventually be passed by the full Senate, though possibly with some amendments. A final Senate vote could come as soon as the end of this week.

The bill, S. 743, would exempt online merchants with less than $1 million in out-of-state sales that would be subject to sales tax. That $1 million number is one of the most likely details of the bill to change. Some opponents—including eBay (NASDAQ:EBAY), which e-mailed 40 million of its users and sellers starting last Sunday (April 21), lobbying for an exemption for sellers with less than $10 million in sales or fewer than 50 employees.

The other key limit for each state is technical, in the IT sense: No state can require the tax collection until it provides free software for merchants that calculates sales tax due on each transaction, files sales tax returns, and is updated to reflect rate changes. Using the free software—or software from a provider the state has certified—will relieve the seller from liability or penalties if the seller didn’t remit the tax due to buggy software or incorrect information provided by the state.

States will also have to provide 90 days’ notice of all changes in tax rates, and have a single place where the sales taxes are to be paid. In other words, if Podunk raises its local sales tax, it’s the state—not the online retailer—who has to keep track and collect the tax, and can only start requiring it will 90-days’ notice.

And states will have to detail what products are covered and how tax boundaries are drawn.


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