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NSBA LEGISLATIVE ACTION COUNCIL DISCUSSION PAPER Marketplace Fairness Act of 2013 (S. 336 and H.R. 684) The NSBA Taxation Committee has endorsed the Marketplace Fairness Act of 2013 (S. 336 and H.R. 684), with the caveat of recommending an exemption level higher than $1 million for small retailers and the assurance of no significant administrative and paperwork burden for compliance. A bipartisan group of Senators and Representatives introduced a bill that resolves the differences between bills introduced in the Senate and the House last Congress that would allow local brick-and- mortar retailers to compete more effectively against out-of-state internet sellers. The Marketplace Fairness Act of 2013 would give states the option to require the collection of sales and use taxes already owed under State law by out-of-state businesses, rather than rely on consumers to remit those taxes to the States—the method of tax collection to which they are now restricted. Under the current tax loophole, while brick-and-mortar retailers collect sales and use taxes from customers who make purchases in their stores, many online and catalog retailers do not collect the same taxes. Under the Marketplace Fairness Act of 2013, states would have the option to require the collection of sales and use taxes by out-of-state sellers if states simplify their sales and use tax systems. The effort in the Senate has been led by Senator Mike Enzi (R-Wyo.) joined with assistant Senate Majority Leader, Senator Dick Durbin (D-Ill.) and Senator Lamar Alexander (R-Tenn.) who introduced the Marketplace Fairness Act in the Senate during the 112th Congress. The effort in the House has been led by Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) who, during the 112th Congress, introduced the Marketplace Equity Act of 2011 and Reps. John Conyers, Jr. (D-Mich.) and Peter Welch (D-Vt.) who, during the 112th Congress, introduced the Main Street Fairness Act. The Senate could vote on the bill as an amendment offered on the floor as early as the week of March 18. The Marketplace Fairness Act The Marketplace Fairness Act would allow local Main Street retailers to compete on a level playing field against out-of-state Internet retailers, give states the ability to enforce their own sales and use tax laws reducing the need to raise taxes, and relieve consumers of the legal burden to report to state tax departments the sales taxes they owe on online purchases. This bill does not create new taxes or increase existing taxes. Background The Supreme Court held in its 1992 Quill that only Congress has the authority to regulate interstate commerce under the Commerce Clause and the current maze of state and local sales tax rules is too complicated to require remote retailers to collect sales taxes. The result is that states and local governments are prohibited from enforcing existing sales and use tax laws on the growing number of out-of-state sales. The Marketplace Fairness Act allows states and local governments, if they so choose, to enforce existing state and local sales and use tax laws if they simplify sales and use tax administration and collection and exempt small online retailers from collection requirements. The bill would level the playing field for Main Street businesses that are currently at a competitive disadvantage because they must collect sales and use taxes while a growing number of remote retailers do not. It would provide a pathway for states and localities across the country to collect an estimated $23 billion annually in uncollected tax revenue to balance their budgets by collecting taxes already owed instead of increasing taxes or cutting vital services. Specifics of the bill The bill provides states the authority to enforce existing sales and use tax laws, if they choose to do so, by adopting one of the following options: Streamlined Sales and Use Tax Agreement (SSUTA): Allows any state that is a member of SSUTA to require remote retailers to collect state and local sales and use taxes. Alternative Minimum Simplification Requirements: States that are not SSUTA members may require remote retailers to collect state and local sales and use taxes if they adopt minimum simplification requirements as outlined in the bill. Small Seller Exception: The legislation would prohibit states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes. i) Remote is only defined as online/catalogue sales done outside of your home state, so anything done through a store front is not counted. States are required to provide software to online sellers free of charge to calculate, collect and remit the sales tax. ii) Liability protections are given to states, sellers and sales tax software providers for errors made throughout the chain. The legislation does not create new taxes or increase existing taxes: Consumers already owe sales and use taxes on the goods they purchase. The legislation simply provides states the authority to enforce existing state and local sales and use tax laws and eliminates the competitive advantage currently enjoyed by remote retailers at the expense of local businesses. The bill is supported by over 200 business, labor, and state and local government organizations including the National Governors’ Association, National Conference of State Legislatures, National Association of Counties, National League of Cities, Retail Industry Leaders Association, National Retail Federation, International Council of Shopping Centers, Amazon.com, and AFSCME. The bill is opposed by eBay, Inc. eBay has argued that this is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors. eBay opposes the bill because they argue the exemption level is far below objective and established definitions of small business retailers, and lacks a true small business exemption. Instead these bills replace the small business exemptions with a “small sellers exemption” that is lower than SBA’s small business lending standard for electronic retailers ($30 million); the Treasury Department’s proposed methodology for defining small businesses ($10 million); and similar legislation introduced in Congress from 2001 through 2008 ($5 million). eBay has continually called for Congress to protect small businesses from new tax burdens online and believe that better policy is reflected in S. Res 309 and H.Res. 95, which echoes eBay’s call for supporting small businesses in this economic environment. Marketplace Fairness Act of 2013 (S. 336 and H.R. 684) Section-by-Section Section 1. Short Title The Marketplace Fairness Act of 2013 Section 2. Authorization to Require Collection of Sales and Use Taxes Streamlined Sales and Use Tax Agreement. Member States under the Streamlined Sales and Use Tax Agreement (SSUTA) are authorized to require all sellers not qualifying for a small seller exception to collect and remit sales and use taxes on remote sales sourced to the Member State pursuant to the provisions of SSUTA if SSUTA includes the minimum simplification requirements and liability provisions set forth under the Alternative in this Act. This authority begins no earlier than the first day of the calendar quarter that is at least 90 days after the State publishes notice of the State’s intent to exercise the authority under this Act, but no earlier than the first day of the calendar quarter at least 90 days after the date of enactment of this Act. Alternative Sales and Use Tax Collection. A state that is not a Member State under SSUTA is authorized to require all sellers not qualifying for the small seller exception to collect and remit sales and use taxes on remote sales sourced to that state, but only if the State implements minimum simplification requirements. Minimum Requirements for Alternative Sales and Use Tax Collection. This authority begins no earlier than the first day of the calendar quarter that is at least 6 months after the State implements minimum simplification requirements: (1) enacting legislation must specify the taxes to which simplification requirements and authority shall apply and specify the products and services to which the authority of this Act shall not apply; (2) establish a single entity within a State responsible for sales and use tax administration, returns and audits, a single audit for all State and local taxing jurisdictions within the State, and a single sales and use tax return for remote sellers to be filed with that entity (a state may not require a remote seller to file sales and use tax returns more frequently than required for nonremote sellers) (3) provide a uniform sales and use tax base within a state; (4) require interstate sales to comply with the sourcing definition based on a destination rate, which is the sum of the State rate and any applicable local rates; (5) provide information about the taxability of products and services and applicable exemptions from sales and use tax in the State and a rates and boundary database; (6) provide software free of charge for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, files sales and use tax returns, and is updated to reflect applicable rate changes; (7) provide certification procedures for certified software providers (software provided by certified software providers shall be capable of calculating and filing sales and use taxes in all States
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