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From Main Street to Marketplace Fairness Acts - Sales Tax 2011

author photo of Sylvia F. Dion

Has the U.S. Congress finally gotten it right? Will the third time be a charm? Will Federal on-line sales tax legislation finally pass?

Earlier this month, we saw the introduction of yet another federal on-line sales tax bill. That's right, on November 9th, S. 1832, “The Marketplace Fairness Act” was introduced in the Senate by Mike Enzi (R-Wy), Lamar Alexander (R-TN), Dick Durbin (D-IL) and seven other bi-partisan Senators. By the way, that’s the same Dick Durbin that introduced the Senate version of the Marketplace Fairness Act (S. 1452) this past July.

What this means is that we now have several competing federal bills, all which seek to grant States the authority to mandate out-of-state (“remote”) sellers to collect sales tax on sales to in-state customers, regardless of whether such remote sellers have sales tax nexus to the state.

To quickly recap, the first of these bills were introduced on July 29th, when Congressional Democrats in both the U.S. Senate and House of Representatives introduced the Durbin bill (S. 1452), and the Conyers bill (H.R. 2701). Both bills read identically and go by the same “Main Street Fairness Act” title. If you’ve been following my blog posts, you’ll recall I covered the details of the Mainstreet Fairness legislation in my August 10th post, “Main Street Fairness Act. Is SST the Silver Bullet?

Then, on October 12th H.R. 3179, “The Marketplace Equity Act”, an alternative remote seller collection bill, was introduced by U.S. Representatives Jackie Speier (D-CA) and Steve Womack (R-AK). Although the “Marketplace Equity Act” was a bi-partisan effort, the legislation was criticized for being crafted too quickly and surrendering Quill protection without demanding adequate simplification.

I compared the Mainstreet Fairness Act (“MFSA”) to the Marketplace Equity Act (“MEA”) in my October 25th post “The Marketplace Equity Act: The New Competition on the Blockand noted that neither proposal offered an ideal solution or appeared to have the level of support needed to pass. The MFSA, which extends its remote seller collection authority only to Streamlined Sales & Use Tax Agreement (“SSUTA”) full-member states, lacked Federal Republican support. The MEA, though a bi-partisan effort, was criticized for completely ignoring the efforts of the SSUTA, creating its own simplification requirements and leaving SSUTA states, who had already implemented simplification measures, to have to abide by a new set of rules.

The Marketplace Fairness Act

Some would say that it’s because of these issues that yet another remote seller collection bill was introduced. The Marketplace Fairness Act (“MFA”) represents a compromise solution which, like the MSFA, grants remote collection authority to Streamlined Sales Tax (“SST”) full-member states, while also providing a separate set of simplification requirements, like the MEA, for states who wish an alternative to the SSUTA’s requirements.

So what exactly does the MFA say?

The MFA provides that SST full member states may require remote sellers that do not qualify for the small seller exception, to collect and remit sales tax on in-state states beginning on first day of the calendar quarter that is at least 90 days after enactment of the MFA. Because the MFA looks to the provisions of the SSUTA, the MFA doesn’t elaborate on the SSUTA’s simplification requirements in the actual bill. For instance, because the small seller exception under the current version of the SSUTA provides that businesses with less than $500,000 in revenue per year are exempt from the remote seller requirements, this threshold would apply to states whose remote seller collection authority under the MFA is based on their status as full-member SST states.

States that are not SST full-members, but who adopt and implement the MFA’s alternative simplification requirements would also be authorized to require remote sellers who do not meet the MFA’s small seller exception (as defined in the MFA) to collect taxes on sales sourced to their states in accordance with the sourcing rules detailed in the MFA. To meet the MFA’s alternative simplification requirements, states must provide all of the following:

  • a single state-level agency to administer all sales and use tax laws, including the collection and administration of all state and applicable local sales and use taxes for all remote seller sales sourced to the state;
  • a single audit for all state and local taxing jurisdictions within the state;
  • a single sales and use tax return to be used by remote sellers and by single and consolidated providers and to be filed with the state-level agency;
  • a uniform sales and use tax base among the state and its local taxing jurisdictions;
  • adequate software and services to remote sellers and single and consolidated providers that identifies the applicable destination rate, including the state and local sales tax rate, to be applied on sales sourced to the state;
  • certification procedures for both single and consolidated providers to make software and services available to remote sellers, which include an agreement to hold providers harmless for any errors or omissions as a result of relying on state provided information; and
  • 30 days’ notice to remote sellers and single and consolidated providers of local tax rate changes.

In addition to these provisions, a state’s simplification must include a requirement that remote sellers and single and consolidated providers collect sales and use taxes under the applicable destination rate (the sum of the state rate and rate for the local jurisdiction into which the sale is made); agree to hold remote sellers using a single or consolidated provider harmless for any errors and omissions by that provider; and relieve remote sellers from liability (including penalties and interest) to the state or locality for collection of the incorrect amount of sales or use tax if collection of the improper amount is the result of relying on information provided by the state.

States that qualify for remote seller collection authority under these alternative simplification requirements are entitled to this authority “no earlier than the first day of the calendar quarter that is at least 6 months after the date the State enacts legislation to implement the requirements.” In essence, a state would first need to pass legislation giving the state authority to implement the MFA’s alternative simplification requirements and then, would have a minimum of 6 months to put all of the requirements and provisions in place.

Small Seller Exception Under Alternative Simplification Requirements

Remote sellers whose annual gross receipts from total remote U.S. sales were $500,000 or less in the preceding calendar year meet the MFA’s definition of a small seller and are exempt from remote collection responsibilities in states which choose to implement the MFA’s alternative simplification requirements. Although the MFA’s small seller exception is similar to the SSUTA’s $500,000 threshold, because the MFA states that the $500,000 threshold includes gross receipts of related “persons”, as defined in the IRC’s attribution rules under Sec. 276 or 707(b)(1), remote sellers who are part of controlled group of corporations may be less likely to qualify under the MFA’s alternative small seller exception.

Single and Consolidated Providers

One major distinction between the MFA and the predecessor bills is the introduction of “Single and Consolidated Providers”. The MFA defines these “providers” as “any person certified by a State who has the right and responsibilities for sales and use tax administration, collection, remittance, and audits for transactions serviced or processed for the sale of goods or services by remote sellers”. In practical terms, a consolidated provider could be an Internet retailer who collects sales tax on behalf of sellers that use its hosting platform.

Final Thoughts

In my opening thoughts, I asked “Has Congress finally gotten it right?” To that thought I add “Is the Marketplace Fairness Act the silver bullet?”

There’s no question that the issue of whether remote retailers should collect sales tax is perhaps one of the hottest topics in state taxation today! And while there are equally valid arguments about whether remote retailers should be required to collect sales tax or not, the collective clamor that it’s time to “level the playing field” and close the perceived on-line sales “loophole” is undoubtedly creating a momentum not seen in prior years when similar legislation was introduced. (Also, see “Should States Require Online Retailers To Collect Sales Tax?”, WSJ Online, 11/15/11)

Will this most recent Congressional attempt, which, by retaining the efforts of the Streamlined Sales Tax project and introducing an alternative for States who do not wish to become SST states, be the compromise that passes? MFA co-sponsor, Lamar Alexander, certainly thinks so. He's been quoted as saying “If I were president of an online retailer …… I'd make my plans to start collecting sales taxes wherever I sold things in the United States."

But will having three competing bills conferred over in the same congressional session work against them all? (According to the most updated information in, a site which tracks the status of U.S. bills, all four bills are in “committee”, the first step in the legislative process. The site notes that the majority of bills and resolutions never make it out of committee.)

And what about the concept of “nexus”? The Marketplace Fairness Act states that it has “no effect on nexus” and that the authority granted the Act has no impact “in determining whether a seller or any other person has nexus with any State for any tax purpose other than sales and use taxes”. In essence, nexus will no longer be required for sales and use tax collection purposes, but will be required for other state taxes. But does this open up the possibility that Congressional efforts could be introduced to circumvent nexus for other types of taxes? Seems absurd? I believe anything is possible!

I suppose for now all we can do is wait for the outcome and have a chuckle. (And write our Congressmen, of course!) I must admit when I first saw that S. 1832 had been dubbed the “Marketplace Fairness Act”, one of the first things that came into my mind was a riddle: What do get when you cross the “Main Street Fairness Act” with the “Marketplace Equity Act”? Why, you get the “Marketplace Fairness Act”! Yes, the MFA is a compromise/hybrid bill – but honestly, couldn’t the drafters have come up with something a little more unique?


Missed my last post? Catch it here, "The Marketplace Equity Act: The New Competition on the Block"

What’s up next? "Amazon as Tax Collector? Amazon Rolls Out its New Tax Collection Service" (exact title TBD)

About the Author: Sylvia Dion is the Founder and Managing Partner of PrietoDion Consulting Partners LLC, a SALT advisory firm which provides SALT services to businesses in the U.S. and throughout Europe, Canada, Latin American and Australia. Since 2011 Sylvia has served as a contributor to the SalesTaxSupport blogs and currently blogs on Internet Sales Tax, U.S. Sales Tax for Foreign Sellers, and Massachusetts Sales Tax. Sylvia has written articles for State Tax Notes, Bloomberg BNA and other premier tax journals. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.


4 Responses to From Main Street to Marketplace Fairness Acts - Sales Tax 2011

  • Posted by Ron on March 4, 2013 3:53am:

    How about this as a "simple" and fair alternative:
    A fair and simple way to level the playing field for online sales.
    Apply this immediately to Amazon, Wal-Mart and all online sellers whose gross sales exceed one million dollars a year.
    Fine tune the process and then start reducing the annual sales level until EVERYONE selling on the Internet is included.
    1. Eliminate all online sales and use taxes.
    2. Impose a Processing Fee (PFE) on every sale made - no exceptions. (This is a fee not a tax.)
    3. Every time an online sale is made by Amazon (Wal-Mart, Target, etc.,) a % of that sale is transferred into a holding account. Once the processing fee is deposited in the holding account, it cannot be reversed. PFE is based on the total amount of the sale including processing fees, handling fees, etc. No matter what Amazon calls it, PFE is charged for the total amount of money the customer pays for his or her purchase.
    4. At midnight, the holding account is transferred to a Federal computer.
    5. The Federal computer takes the money received and immediately transfers it, less an agreed upon processing fee that pays for the computer, to individual state computers based on a distribution formula agreed to by the individual states.
    6. Once this works properly for Amazon, the one million in sales cutoff should be dropped to 500,000 and then to progressively lower amounts. Within a few years EVERYONE selling on the Internet will pay their fair share in processing fees. Since the PFE goes to a Federal computer, anyone trying to beat the system should be charged with a Federal crime and be vigorously prosecuted.
    If elected officials don't spend the money faster than it is collected, the % should be lowered as more and more businesses begin paying PFE. (Every business selling on the Internet, NO EXCEPTIONS, will pay a PFE.) If you object to paying PFE, for any reason, don't sell or purchase via the Internet.
    Cost of collecting and processing PFEs should be minimal for both government and private businesses. You won't need lawyers and accountants to figure out how to beat the system. You sell anything on the Internet and you pay PFE. You try to beat the system and you deal with the IRS or another Federal agency.
    Companies who work with affiliates (Amazon) and companies like PayPal who offer shopping carts, would collect a PFE for every transaction. This would eliminate everyone using these systems from the burden of collecting and disbursing PFEs for those sales. (And collect revenue from small sellers who have avoided collecting and reporting sales taxes on their sales.)
    Individual states would have a daily stream of incoming revenue. The Federal computer and its SMALL staff would be paid for by an agreed upon processing fee. Amazon and other big corporations would pay their fair share and be prevented from playing games with their books to avoid paying PFE. Each business would decide whether to pass the PFE on to its customers or absorb the fee internally. Customers refusing to purchase via the Internet would be subject to brick and mortar sales tax rules and fees. Everyone selling anything on the Internet would pay PFE. (Whether or not PFEs would be a business deduction would be up to individual states and the Federal government.)
    I hope someone, much smarter than I am, reads this and comes up with a way to simplify online taxes and reduce the paperwork that will be inflicted on small businesses across our wonderful country. Everyone selling on the Internet should be subject to the same rules and fees; but, they have to be understandable, simple to administer and affordable for all businesses.
    This system is simple, easy to implement with our modern technology, and can operate independently of the current complicated sales tax systems that small and big business have to deal with on a daily basis.
    Small businesses are not asking for favors, we just want a fighting chance, a reasonably level playing field, and a collection process that doesn't cost more than we can afford.

  • Posted by David on November 28, 2011 11:21pm:

    As usual, an excellent summary; Thank you. I would briefly like to add that the House of Representatives Committee on the Judiciary has scheduled and oversight hearing tomorrow (November 30th, 2011) - "Constitutional Limitations on States' Authority to Collect Sales Taxes in E-Commerce"
    More details and the scheduled witness list is available on the Judiciary website at

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on November 29, 2011 1:52am:

      You’re welcome! I sincerely appreciate you reading my MANY posts and always leaving a kind comment! Thanks especially for the update on tomorrow’s Committee on the Judiciary Hearing on Constitutional Limitations on States' Authority to Collect Sales Taxes in E-Commerce. Wow, an impressive line-up of participants – Patrick Byrne of Overstock, Tod Cohen of eBay, Paul Misener of Amazon, Senator Luke Kenley of SST Governor Boards, et al. – I’d love to be a fly on the wall in that room!
      Thanks again!
      Sylvia Dion

      • Posted by Author photo of Sylvia F. DionSylvia F. Dion on December 3, 2011 8:05am:

        Well, I didn't have to settle for simply wishing I was a "fly on the wall" as the Judiciary Committee Hearing was webcast on Wednesday, November 30th. And, yes, I did see (almost) the entire webcast!
        It was interesting, disheartening and even entertaining at moments. Look for a future post as I discuss the hearing, my observations and some of the valid issues presented during the Judiciary Committee's hearing on Constitutional Limitations on States’ Authority to Collect Sales Taxes in E-Commerce.
        Sylvia Dion

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