The Marketplace Fairness Act (MFA), as drafted, provides a small business sales tax exemption that will protect small business owners that collect under $1 million in remote sales, or sales to customers in states where the seller does not have a physical presence. Arguments have been made that the $1 million threshold is too low, and some opponents are pushing to extend the definition of a small business to cover those under $10 million in remote sales.
If the bill passes, retailers who expect to be subject to the MFA should ensure they are able to collect, track and report remote sales taxes using the free software states are mandated to offer under the MFA. The complexity of the tax code could require smaller retailers to seek the assistance of accountants and tax professionals.
Based on a broad sample of online retailers supported by Vendio, fewer than five percent would be subject to the MFA, according to Vendio CEO, Mike Effle. This concentrated group of sellers, however, represents about 40 percent of the nearly $2 billion in annual sales in the sample. This sample excludes large businesses like Amazon or Best Buy. If large online retailers were included, the tax collection percentage would be even more disproportionate to the actual number of online retailers who will be burdened by the MFA, Effle says.
Smaller retailers with out-of-state sales revenues right around the exemption threshold will be facing a challenging decision, Effle explains. “Do they seek growth, or succumb to the perverse incentive to limit themselves and keep annual sales under the threshold, to avoid the burden of tracking and reporting across 50 states? For certain, raising the threshold would increase the number of small businesses who could grow and hire without the fear of incurring additional costs that could be detrimental to their businesses.”