The Marketplace Fairness Act was a proposed legislation pending in the United States Congress that would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state.
During the 112th United States Congress, a bill () was considered but expired without enactment. During the 113th Congress, the Marketplace Fairness Act of 2013 was introduced on February 14, 2013, in the House as and in the Senate as . It was introduced a second time in the Senate as on April 16, 2013 and was passed there on May 6, 2013. All three bills were virtually identical and would have allowed states to require online and other out-of-state retailers to collect sales and use tax. It was re-introduced as in 2017 but did not pass.
The Supreme Court later ruled in South Dakota v. Wayfair, Inc. that the states are not constitutionally barred from collecting sales and use tax from out-of-state retailers.
Prior law Each state in the United States may impose a sales tax on products or services sold in that state. Most states impose a sales tax, some states do not; and each state may set the rate and scope (products taxed) of the sales tax. Within each state, counties and cities may have different sales tax rates and scope, resulting in many different rates based on the location of the point of sale. Generally, the states allow (or require) the seller to itemize and collect the tax from their customers at the time of purchase. Most jurisdictions hold sellers responsible for the tax even when it is not collected at the time of purchase.
Residents of the 45 states with sales and use tax must pay tax on their online purchases. However, according to the Supreme Court rulings in National Bellas Hess v. Illinois (1967) and Quill Corp. v. North Dakota (1992), retailers, including catalog and online sellers, only need to collect sales and use tax for states where they have a physical presence. If an online retailer does not collect sales tax at the time of purchase, the consumer must pay the use tax due directly to the state. While business compliance with use tax filing is quite high, consumer compliance is rather low. The Marketplace Fairness Act sought to increase compliance and tax collections by shifting the responsibility for payment from consumers to retailers.
Quill and National Bellas Hess were later overruled in South Dakota v. Wayfair, Inc. (2018), which stated that a state may collect sales tax on purchases made from out-of-state sellers that do not have a physical presence in the state.
Provisions of the bill This summary is based largely on the summary provided by the Congressional Research Service, a public domain source.
The Marketplace Fairness Act of 2013 would authorize each member state under the Streamlined Sales and Use Tax Agreement (the multi-state agreement for the administration and collection of sales and use taxes adopted on November 12, 2002) to require all sellers not qualifying for a small-seller exception (applicable to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the agreement, but only if the agreement includes minimum simplification requirements relating to the administration of the tax, audits, and streamlined filing. The bill defines "remote sale" as a sale of goods or services into a state in which the seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by the act.
Previous versions The 2011 version of the Marketplace Fairness Act () would have provided states with the authority to require out-of-state retailers to collect and remit use tax on purchases shipped into the state. In return, states would have been required to either join the Streamlined Sales and Use Tax Agreement or to simplify their sales and use tax laws to comply with the Marketplace Fairness Act. That bill would have required any seller who sells a product or service to a consumer in a participating state to calculate, collect, and remit the consumer's use tax based on the tax rates of that other state. The purpose was to offset use taxes that consumers evade paying in their home state when making interstate purchases. The bill specifically made no distinction as to the manner in which the sale is transacted.
The 2011 bill provided an exclusion for businesses with annual sales of $500,000 or less. This was much smaller than the threshold used by the Small Business Administration for defining a small business: $30 million in most cases. There was also no specific exclusion in the legislation to exempt resellers from the tax, so the Streamlined Sales and Use Tax Agreement would have applied to those sales: A retail shop owner who makes interstate purchases of applicable merchandise for resale in their store would be required to pay sales tax on those purchases or apply to their state for a reseller permit, resale license, or wholesale exemption certificate, any of which would exempt retailers from paying sales tax on purchases made for resale.
History In December 2014, members of the House of Representatives lobbied their leadership to allow a vote on the act. Steve Womack organized a group of 30 Republican members that met with Speaker John Boehner and Judiciary Chairman Robert Goodlatte. Boehner again refused to allow a vote in the 113th Congress. Boehner and Goodlatte did say that they were committed to eventually getting a vote "done."
In 2013 legislation, Virginia tied its gas tax rate to passage of the Marketplace Fairness Act or similar legislation by January 1, 2015. On that date Virginia automatically increased its gas tax rate by about 45% in order to partially cover the revenue shortfall from failure to pay tax on online sales shipped from out of state. The tax increase will automatically cease when federal legislation is passed to address this issue.
In the 112th Congress, the bill () was introduced in the United States Senate on November 9, 2011.
Multiple bills were introduced in the 113th Congress:
S.743 was introduced into the Senate on April 16, 2013 by Senator Michael Enzi (R-WY). As of April 23, 2013, the bill had 28 cosponsors – 21 Democrats, 6 Republicans, and 1 independent.
S.336 was introduced into the Senate on February 14, 2013 by Senator Michael Enzi (R-WY). The bill was immediately referred to the United States Senate Committee on Finance. As of April 23, 2013, the bill had 29 cosponsors – 22 Democrats, 6 Republicans, and 1 independent.
H.R. 684 was introduced into the House on February 14, 2013 by Rep. Steve Womack (R-AR). The bill was immediately referred to the United States House Committee on the Judiciary. On April 8, 2013, it was referred to the United States House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. As of April 23, 2013, it had 55 cosponsors, 33 Democrats and 22 Republicans.
Debate
Previous bills In the 2011 Bill, opponents were concerned that the bill would have imposed an unrealistic burden on sellers and consumers, while proponents said that it would have helped retailers with a physical presence in sales-tax states to compete with online retailers. Proponents have argued that residents of states that impose a sales tax choose to purchase out-of-state products to avoid the sales tax and that businesses selling to customers in participating sales-tax states should collect and pay the new interstate sales tax, to mitigate the effect of consumers who illegally evade the use tax. Opponents of the bill argued that states already have the right to impose, or not impose, a sales tax, and if states wished to compete for interstate sales, they may reduce or eliminate their sales tax.
Large retailers who have a physical presence in most or all states are already required to collect sales tax on interstate sales to consumers in those states, so the bill would not have had a significant effect on them. (Technically, those sales are considered intrastate sales for taxing purposes because of the seller's physical presence within the taxing state.) Prior to the South Dakota v. Wayfair, Inc. decision, their smaller competitors who have stores in a few states or in one state were required to collect sales tax only where they have a physical location. If they have online stores, the bill would have allowed participating states to require them to calculate, collect, and pay the new interstate sales tax. Walmart, Target, Amazon, and other retailers have been reported as supporters of a new sales tax. The National Association of Music Merchants supported the 2011 Bill because it would have required online music sellers such as Apple's iTunes to pay the tax to some participating states. eBay, Overstock.com, and other online retailers were opponents of the 2011 Bill. Retailers and government representatives in states that have no sales tax were generally opposed to the bill.
Supporters
The Alliance for Main Street Fairness (AMSF), is a coalition of business owners and citizens from across the United States who want to level the playing field and fix antiquated tax laws so that businesses, whether online or traditional brick-and-mortar sellers, can compete fairly in the marketplace.
The Retail Industry Leaders Association (RILA), a trade association in the retail industry, spoke out in favor of the Marketplace Fairness Act of 2013. In a press release, the organization argued that the bill would "level the playing field" between online-only retailers and Main Street businesses by giving the States the option to charge sales tax. Walmart and Amazon.com have teamed up in a massive lobbying effort in support of this legislation. Other big backers of the legislation include many of the nation's largest "box store" retailers including Best Buy, Bed Bath and Beyond, Barnes & Noble, Dick's Sporting Goods, Foot Locker, Target, Staples. In fact, the nation's biggest retailers spent over $50 million lobbying the Senate before its passage of the MFA on May 6, 2013.
President Barack Obama indicated his support for the bill with a White House Statement of Administrative Policy on April 22, 2013. In the statement, the White House expresses the concern that small local businesses are disadvantaged because they collect state sales tax in comparison to large online retailers who do not.
Governors from across the U.S. have also come out in support of federal legislation allowing states to collect a sales tax from purchases made online. Nearly fifteen state Governors have either signed legislation or are considering legislation while pledging to cut taxes for their citizens using the new revenues once Congress passes federal legislation. Conservative leaders and elected officials have also come out in large to support federal legislation to level the playing field for brick-and-mortar retailers.
Arthur B. Laffer, Chairman, Laffer Associates: "In-state retailers collect sales taxes at the time of purchase. When residents purchase from retailers out of state (including over the Internet) they are supposed to report these purchases and pay the sales taxes owed—which are typically referred to as a "use tax." As you can imagine, few people do. The result is to narrow a state's sales-tax base. It also leads to several inefficiencies that, on net, diminish potential job and economic growth. Exempting Internet purchases from the sales tax naturally encourages consumers to buy goods over the Web; worse, the exemption incentivizes consumers to use in-state retailers as a showroom before they do so. This increases in-state retailers' overall costs and reduces their overall productivity."
Charles Krauthammer, Columnist and Political Commentator: