As a manufacturer are you following the Marketplace Fairness Act? You should be.
MANUFACTURING INSIGHTS |
On May 6, 2013, the Senate voted in favor of the Marketplace Fairness Act of 2013 (MFA), which, if enacted, would grant a qualifying state the authority to compel a remote seller to collect and remit sales tax on sales delivered to purchasers within the state. Supporters of the bill focus on the MFA as a method of achieving sales tax collection and remittance parity between online and bricks-and-mortar retailers, however, the reach of the MFA extends far beyond Internet-based retail transactions. The implications for manufacturers may be substantial.
At present, the MFA applies to states that implement certain minimal sales tax simplification measures and to remote sellers with total annual gross receipts for remote sales in excess of $1 million. Manufacturers that largely concentrate on making wholesale sales to distributors, sales to other manufactures as part of a supply chain, or sales that are exempt under the laws of the states in which they have nexus should not overlook the MFA.
Remote vs. Internet, gross vs. exempt
When considering the applicability of the MFA, the language of the bill must be closely analyzed. The MFA defines the term remote seller as "a person that makes remote sales in [a] State." The term remote sale is defined as a "sale 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 this Act." There is no requirement within the MFA that a sale must be transacted over the Internet to be treated as a remote sale. Accordingly, a manufacturer with physical presence only in State X that makes remote retail sales to customers in State Y - over the Internet, by phone, or by mail order - would be required to collect and remit State Y sales tax regardless of nexus in the state.
In addition, nothing in the implementing language of the $1 million threshold or the definition of the term remote sale would require the threshold determination to be based solely upon taxable retail sales. Therefore, gross receipts from sales for resale and exempt sales would be included in total annual gross receipts from remote sales. This inclusion would have significant ramifications. First, a manufacturer with nexus only in State X that makes substantial wholesale or otherwise exempt remote sales, but makes no taxable remote sales, would be required to collect and maintain documentation (resale or exemption certificates) to substantiate the exempt status of their remote sales. Second, a manufacturer with nexus only in State X that makes minimal taxable remote sales to end users in State Y but makes substantial wholesale or otherwise exempt remote sales would be required to collect and remit State Y sales tax. Accordingly, although the amount of tax to be collected and remitted in these types of scenarios would likely be insignificant or even non-existent, the costs of compliance could vastly outweigh the actual tax burden.
Legislative status and business preparations
The MFA is currently being considered by the House of Representatives, with several modifications under discussion, particularly in relation to the $1 million threshold. It is unlikely to pass the House without such modifications. Any differences between the House and Senate versions of the MFA must be reconciled and a final bill signed by the President.
Manufacturers that make substantial total remote sales and/or make remote retail sales to consumers in multiple states should pay close attention to the progress of the MFA and consider how they will respond to the increased compliance requirements should the bill be enacted.
Learn more The Marketplace Fairness Act: Five proactive strategies remote sellers should consider now.