A Balance or a Tax?

There is a lot of buzz around the Marketplace Fairness Act, most of which boils down to the usual partisan arguments about the role of the Federal Government and free market capitalism. Most of you probably already have an opinion on the measure but let’s recap the basics.

Essentially the act would overturn a string of cases, the last one from 1992, which have held that individual states cannot require online retailers (at the time it was catalogue retailers ) to collect and remit sales tax to a state unless that retailer has a physical presence in the state. For most of the last decade, cash strapped states have been eyeing the $20 or so billion in extra revenue they think they’ll get if allowed to mandate out-of-state tax collection; some states are even planning how to spend the money despite the fact that the bill hasn’t yet passed the House, and may not ever.

Inevitable collection

There are plenty of arguments on both sides of the debate, but it seems likely that the states will win out eventually. It might not be with this bill, but the sales tax is already legally theirs to collect, most people just don’t bother paying it. With this much money involved, it’s almost a sure bet that the states will think up something sooner or later. The days of sales-tax free internet shopping are numbered.

How to implement the law

The bigger question for most retailers is how to implement the law if it passes. Fortunately, there are some developing software solutions that should handle calculation and 24 states have already signed up for a unified registration and remittance system making payment of the tax simpler.

Finally, the one thing many people aren’t talking about is the fact that the states would be required to provide free shopping cart software to handle the dirty work. The results are a series of shopping cart add-ons that are free to retailers and which promise to calculate and collect the appropriate tax from every state and jurisdiction.

One good example is TaxCloud, a company that claims to offer one of only six nationally certified ecommerce services ready to tackle the new tax rules; if the bill passes the house. Like its competitors, TaxCloud is 100% free to retail users. They make their money on commission the states pay for remittances.

Bottom line

While the fate of the Marketplace Fairness Act remains uncertain at the time this article was written, and much is still unknown about exactly what kind of fallout the bill will have in practice, there is hope for retailers. For one thing, the current draft exempts any retailer bringing in less than $1 million in out-of-state revenue. For another, emerging services and software will likely take the bite out of individual implementation shifting, those costs to the states who will be required to pay for software.

Whether the new rules will actually level the playing field as proponents suggest, or instead destroy internet retail completely (a speculation actually in print), remains to be seen. Whatever happens, don’t forget that Ottenhoff Consulting has several years of experience in ecommerce development. We will continue to monitor the progress of this bill and are already working on implementation guidelines should the act pass.


Kjeld Lindsted Kjeld Lindsted
Content Architecture, Copywriting, and Editing
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