James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comThe MarketPlace Fairness Act: Does It Foreshadow a Value Added Tax
Author: James F. McDonough|May 13, 2013
The Senate passed The Marketplace Fairness Act (the “Act”) and sent the bill for consideration to the House.
The MarketPlace Fairness Act: Does It Foreshadow a Value Added Tax
The Senate passed The Marketplace Fairness Act (the “Act”) and sent the bill for consideration to the House.
The Senate passed The Marketplace Fairness Act (the “Act”) and sent the bill for consideration to the House. The Act provides that internet retailers must collect sales tax on out-of-state transactions reversing the holdings of cases and interpretations of statutes that protected out-of-state sellers for decades.
There is a long history of case law that prevented out-of-state businesses from being subject to taxation or collecting taxes unless the business had “sufficient contacts” with the state to justify this jurisdiction. Prior to the internet, jurisdictional issues arose out of travelling salesmen, title passage rules and drop shipments. More sophisticated questions arose out of intercompany fees for licensing intangibles, leased employees and order fulfillment centers. States, however, could not exert jurisdiction over a non-resident seller who took orders over the internet. Instead, states relied on their citizens to pay use tax on out-of-state purchases.
In order for a state to obtain the privileges of the Act, the state must either adopt the Streamlined Sales and Use Tax Agreement or adhere to a more simplified sales tax measure. The key measure in either case is that the location of the buyer determines the sales tax rate and state to which it is paid. This will create a more level playing field between brick and mortar retailers and internet retailers. It will certainly help states to collect revenue.
If this precedent is overcome, it will not be long before a VAT could be imposed. European countries impose a VAT on sales of goods and services. The proponents of a VAT cite the sophistication of software to do the reporting and tax calculation. I predict that we will do the same to capture more transactions in the tax net.
The MarketPlace Fairness Act: Does It Foreshadow a Value Added Tax
Author: James F. McDonough
The Senate passed The Marketplace Fairness Act (the “Act”) and sent the bill for consideration to the House. The Act provides that internet retailers must collect sales tax on out-of-state transactions reversing the holdings of cases and interpretations of statutes that protected out-of-state sellers for decades.
There is a long history of case law that prevented out-of-state businesses from being subject to taxation or collecting taxes unless the business had “sufficient contacts” with the state to justify this jurisdiction. Prior to the internet, jurisdictional issues arose out of travelling salesmen, title passage rules and drop shipments. More sophisticated questions arose out of intercompany fees for licensing intangibles, leased employees and order fulfillment centers. States, however, could not exert jurisdiction over a non-resident seller who took orders over the internet. Instead, states relied on their citizens to pay use tax on out-of-state purchases.
In order for a state to obtain the privileges of the Act, the state must either adopt the Streamlined Sales and Use Tax Agreement or adhere to a more simplified sales tax measure. The key measure in either case is that the location of the buyer determines the sales tax rate and state to which it is paid. This will create a more level playing field between brick and mortar retailers and internet retailers. It will certainly help states to collect revenue.
If this precedent is overcome, it will not be long before a VAT could be imposed. European countries impose a VAT on sales of goods and services. The proponents of a VAT cite the sophistication of software to do the reporting and tax calculation. I predict that we will do the same to capture more transactions in the tax net.
