10 Ways Internet Sales Tax Will Change The Online Marketplace

Many e-commerce business owners are buzzing about the potential passage of the Marketplace Fairness Act. In case you haven’t heard of it, the MFA will require that companies that are selling products online charge sales tax to their customers.
There are a number of rumors flying around about how the new law will affect the online marketplace. Here are ten facts about how the MFA will change the e-commerce landscape.

Businesses with over $1 million in annual revenue

Currently, the Marketplace Fairness Act revenue threshold is set at $1 million annually. This means that businesses with yearly revenue that crosses this threshold will be required to charge sales tax and pay taxes in all the states where they have customers.

Businesses with under $1 million in annual revenue

Online businesses with less than $1 million in annual revenue won’t be affected as much by the passage of the MFA. Smaller businesses will not be required to charge sales tax and pay taxes in different jurisdictions if they stay under the revenue threshold.

Rules about taxes in different states

One of the hot-button issues with the MFA is the complex process of paying taxes in multiple states. Online business owners are concerned because they will be required to abide by the tax laws of nearly 10000 jurisdictions.

State by state implementation

Currently, the Marketplace Fairness Act includes a provision that makes it optional for states to implement. So if a state chooses not enact the law, they will not collect the tax revenue and online business owners with revenue that exceeds the $1 million mark will operate as they had previously.

Simplifying the tax payment process

To help simplify the tax payment process, states who implement the law will be required to provide special tax software to business owners. This software will help make paying taxes in other states a less cumbersome process.

What about big businesses like Amazon?

Amazon is actually backing the MFA, which may seem surprising. But all evidence points to the fact that Amazon was eventually planning to start charging sales tax to customers anyway. The online landscape is changing and fewer states are allowing for tax-free online sales.

Leveling the playing field

Proponents of the MFA argue that it levels the playing field for stores with a physical presence. Brick and mortar businesses are already charging customers sales tax for their purchases, so why shouldn’t online businesses be forced to do the same?

Potential tax penalties

The complex tax process is one of the biggest sticking points of this particular Act. Even with the free tax software that simplifies the process, paying taxes in 46 different states is a highly complex issue. Small business owners are concerned that they will incur severe penalties if they make a mistake – and rightfully so! It would be worth it to sit down with a small business lawyer to make sure you are following everything correctly.

Risk of being audited

With the complicated tax payment process comes another risk: the heightened risk of being audited by the IRS. As mentioned previously, the new tax payment process has plenty of room for error. So the likelihood of a business being audited increases.

Increasing state revenue

One important outcome of the passage of this new law is the increase in state revenue. It will be beneficial for states facing a budget shortfall because they will be able to collect taxes from online business owners who likely wouldn’t have had to pay taxes there previously.

The Marketplace Fairness Act is one of the most hotly debated laws of recent times. As a result, there are a number of rumors being spread about how it will actually affect online businesses. Hopefully these ten points helped to clear things up a bit!