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Marketplace Fairness Act 2013: New & Improved from MFA 2012?

author photo of Sylvia F. Dion

Federal Internet Tax legislation is back on the table!

On February 14, 2013, members of the 113th Congress announced the introduction of NEW federal “Internet Tax” legislation – the “Marketplace Fairness Act of 2013”. Despite the similarity in the proposal’s name to one of the three bills introduced by the prior Congress, this is not the same proposal. The prior Marketplace Fairness Act (S. 1832, 112th Congress) failed to pass, along with the two other federal internet tax proposals introduced last session. And while there are similarities between the NEW Marketplace Fairness of 2013 and the prior Marketplace Fairness proposal, there are significant differences too.

Now I have to believe you’ve heard of the latest federal “Internet Tax” proposal since the media’s coverage of the Marketplace Fairness Act of 2013 has been everywhere! But if you’ve read the mainstream media coverage, you probably agree that much of what’s been reported is largely a high level recap of the proposal and a repeat of the same old chants, “legislation introduced to close the on-line sales tax loophole”, “the days of internet shopping soon to be over”, or something similar.

So in my post today, I won’t give you another high-level summary, nor will I be overly opinionated as to whether the new legislation is “right” or “wrong”. (There's enough of that debate going around!) What I will do is focus on is what the Marketplace Fairness Act of 2013 says – what it will require of states that wish to benefit from it, as well as how it will impact you, our reader!

Yes whether you’re the owner of a business that makes internet sales, a CPA or attorney that advises clients with internet operations, or an in-house corporate professional charged with the responsibility of insuring that your employer is compliant with the new federal “Internet Tax” legislation, you’ve come to the right place!

But before launching into the provisions of the new legislation, here’s a point or two I’d like to make. I’ve already mentioned that the current proposal, though similarly named to the previous Marketplace Fairness Act, is not the same proposal. Another point I’ll mention is that the Marketplace Fairness Act of 2013 is a bicameral proposal. This means that identical companion proposals have been simultaneously introduced in each of the two U.S. legislative chambers. In the Senate the proposal was introduced as Senate Bill, S. 336, and in the House of Representatives, the proposal was introduced as House Bill, H.R. 684.

And although the two proposals currently read identically – S. 336, and H.R. 684 are procedurally two separate proposals. Each which will be considered first within the chamber that introduced that bill, each could end up with different sets of amendments and each proposal could move from one chamber to the other in the same way that a single bill (non-companion) bounces back and forth while being contemplated. And here’s another thing, one proposal could be defeated, while the other could survive. So the point here is we’re not talking about one single proposal, but two identical, companion proposals.

But moving along, let’s take a look at the provisions of the Marketplace Fairness Act of 2013, shall we?

The Marketplace Fairness Act of 2013 (S. 336 / H.R. 684)

Like the similarly named prior proposal, the Marketplace Fairness Act of 2013 (“MFA of 2013”) is compromise or hybrid bill which will grant collection authority to Streamlined Sales Tax (“SST”) full-member states and to non-SST states that enact state legislation to adopt the proposal’s simplification and other provisions.

But there are significant differences between the prior proposal and the MFA of 2013. Key differences include an increase in the dollar threshold for the small-seller definition, the requirement that states must provide free sales tax calculation software to remote sellers (other than those that meet the small seller exception), the exclusion of single and consolidated service providers, and a preemption clause which may be interpreted as an expansion of state’s powers.

Simplification Requirements

It’s also important to note that even though the MFA of 2013 grants collection authority to implementing full-member SST states and non-SST states, all implementing states must provide the same simplification requisites. The MFA of 2013 makes it clear that SST full-member states qualify for collection authority “but only if the Streamlined Sales and Use Tax Agreement includes the minimum simplification requirements” detailed in the proposal.

To meet the MFA of 2013’s requirements, states must enact legislation that specifies the taxes to which the simplification requirements and authority apply and the products/services to which the new law does not apply and provide all of the following:

  • a single state-level entity to administer all sales and use tax ("SUT") 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. (Note, under the prior MFA, this requirement referred to a state “agency”, whereas, the new law uses the term “entity” which might suggest that this responsibility could be outsourced to a non-governmental third party.)
  • a single audit for all state and local taxing jurisdictions within the state.
  • a single SUT return to be used by remote sellers for filing with the state designated SUT administration entity and a requirement that remote sellers not be mandated to file SUT returns more frequently than non-remote sellers.
  • a uniform SUT base among the state and its local taxing jurisdictions.
  • a rates and boundary database.
  • free software to remote sellers that calculates the sales tax due on each transaction at the time the transaction is complete, files SUT returns and is updated to reflect tax rate changes.
  • certification procedures for Certified Service Providers (“CSPs”), which must include a requirement that the software provided by CSPs be capable of calculating and filing SUT returns in every state that qualifies for collection authority under the MFA of 2013.
  • 90 days’ notice of rate changes along with liability relief to both remote sellers and CSPs (discussed below). (Note that under the prior legislation, a 30-day notice period for rate changes applied.)

Sourcing Rules

In addition to these simplification and administration provisions, a state must require remote sellers to collect sales and use taxes under the applicable destination rate, which is the sum of the state rate and rate for the local jurisdiction into which the sale is made. The proposal also includes a hierarchy of sourcing rules that non-SST states can apply which essentially say that the location into which a sale is made is first based on where the purchaser instructs the seller to deliver the purchase. But if such delivery location isn’t specified, then the sale is sourced to the customer’s address that is already on record with the seller or which is obtained during the transaction, which could be based on the address of the customer’s credit card or other payment instrument. And finally, if an address is not known the sale is sourced to the address from which the remote sale was made. SST member states would use the SSUTA’s sourcing rules.

Liability Relief Provisions

Under the MFA of 2013, implementing states are also required to provide the following liability relief provisions to remote sellers and CSPs:

  • Remote sellers are relieved from liability for incorrectly collecting or remitting or for failing to collect sales & use taxes if the liability is the result of: (1) an error or omission made by the CSP, or (2) incorrect information or software provide by the state.
  • CSPs are similarly relieved from liability for incorrectly collecting or remitting or for failing to collect sales & use tax if the liability is the result of: (1) misleading or inaccurate information provided by a remote seller, or (2) incorrect information or software provided by the state.
  • Both remote sellers and CSPS are relieved from liability for collecting sales & use taxes at the immediately preceding effective rate during the 90-day notice period if a state does not provide the required rate change notice.

Small Seller Exception

States must also exempt remote sellers that meet the proposal's “small-seller” definition from collecting their state and local sales taxes. Under the MFA of 2013, both SST and non-SST states must comply with the same “small-seller” exception. Under the new proposal, remote sellers with total annual U.S. remote gross receipts of $1,000,000 or less must be exempt from collecting sales tax in states in which they meet this threshold. The gross receipts for purposes of determining whether the small seller exception applies to a specific seller is based on the seller’s gross receipts for the preceding calendar year. Like the prior proposal, the MFA of 2013 requires remote sellers to include the sales of related businesses, such as subsidiaries that are owned by the same parent company, when determining if they meet the small seller exception. Whether another business is considered related is based on the attribution rules under IRC Sec. 267 or 707(b)(1).

Effective Dates:

SST full-member states that meet all of the MFA of 2013’s requirements are entitled to exercise their collection authority 90 days after the state publishes a notice of the State’s intent to exercise their authority, but no sooner than the first day of the calendar quarter that is at least 90 days after the MFA of 2013 is enacted. Keep in mind that the MFA of 2013 defines SST states as those that are full-members, not associate members. As of today’s date, the twenty-two SST full member states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Vermont, Utah, Washington, West Virginia, Wisconsin and Wyoming

Non-SST member states that meet all of the MFA’s requirements are entitled to exercise their collection authority no earlier than the first day of the calendar quarter that is at least 6 months after the State enacts legislation to implement the requirements.

Concluding Thoughts

So there you have it. A detailed explanation of what the MFA of 2013 would require of states that wish to obtain collection authority. If either S. 336 or H.R. 684 passes, what will be important is for sellers (and their advisors) to stay informed of which states are taking the required action to obtain collection authority. Sellers should also keep in mind that SST full-member states will have “leg up” on obtaining collection authority under the MFA of 2013, as these states have already simplified their sales tax collection and administration systems (in accordance with the SSUTA), and that the effective date in these SST states could occur as soon as 90 days after the MFA of 2013 is enacted.

But also keep in mind, that the MFA of 2013 does not require states to implement the legislation – complying with the MFA of 2013 would be completely optional. Many states have already enacted “Amazon” type legislation which impose a collection requirement on out-of-state (remote) sellers by expanding the definition of nexus creating activities in order to meet the Quill physical presence requirement. These states may not feel compelled to abandon their state laws and implement the federal law’s requirements. (Look for our upcoming State Amazon Law section which will detail which states have adopted an “Amazon” Law and the various types of provision within each state’s law.)

And indeed, the optional adoption of the MFA of 2013 is one criticism of the federal proposal. Therefore, because State Amazon Laws and the federal “Internet Tax” legislation achieve a similar goal – capturing state revenues not currently being remitted by residents who make internet purchases on which no tax is charged - Amazon laws will not cease to exist. Companies that sell over the internet will need to continue to focus on their nexus profile, as well as keep track of what the various states are doing to comply with the federal legislation.

Will either S. 336 or H.R. 684 pass? Both proposals have bi-partisan support and every legislator that was a key sponsor of one of the three proposals introduced by the 112th Congress is again a key sponsor of either S. 336 or H.R. 684. For instance, the Senate Version of the MFA of 2013, S. 336, was introduced by Mike Enzi (R-WY), and 19 other co-sponsors, including Lamar Alexander (R-TN) and Dick Durbin (D-IL) (Enzi, Alexander and Durbin were the sponsors of the prior Marketplace Fairness Act). Since the proposal’s introduction on February 14th, four additional Senators have signed on as co-sponsors, bringing the total number of Senators backing S. 336 to twenty four – 6 Republicans, 17 Democrats and 1 Independent. (Here’s an interesting note, included in this co-sponsoring group is freshman Senator Heidi Heitkamp (D-ND). If her name sounds familiar, that’s because Senator Heitkamp served as North Dakota’s Commissioner of Revenue during the Quill era. Yes, the Heitkamp in Quill Corp. v. Heitkamp, 504, U.S. 298, 1992, is one in the same.)

The House Version of the MFA of 2013, H.R. 684, was introduced by Steve Womack (R-AR), who was also one of the key sponsors of the prior Marketplace Equity Act (H.R. 3179, 112th Congress). In additional to Mr. Womack, as of today’s date there are 47 additional co-sponsors backing H.R. 684 – 23 Republicans and 25 Democrats. Included in this group of 47 co-sponsors are Jackie Speier (D-CA), who co-sponsored the prior Marketplace Equity Act with Mr. Womack, and John Conyers (D-MI), who was the key sponsor of the House version of the prior Main Street Fairness Act (H.R. 2701, 112th Congress).

Yet, despite the seemingly high legislative backing for both proposals (as well a high level of support from many organizations and companies, including, there is already talk of issues that could derail this effort. One issue is that legislators from states that do not currently impose a sales tax, such as Montana and New Hampshire, have voiced their opposition to the legislation for the fear of the impact it would have on their internet selling constituents. As a result there’s been talk of granting an exception for sellers who are based in “no-sales tax” states. This would mean that a Montana based seller who sells over the internet to customers throughout the country would not be required to collect sales tax in any jurisdiction even if the Montana seller did not meet the “small seller” definition. Incidentally, one high-ranking key legislator that could be pushing for this exception is Max Baucus (D-MT), who happens to be the Chairman of the Senate Finance Committee which incidentally is the Committee to which S. 336 has been assigned! (See “Baucus can help Montana by opposing Internet tax”, the Missoulian, 1/23/13) Another recent issue is the belief that overall tax reform will take center stage, and that once again, efforts to pass Internet Tax legislation will get pushed aside (See “Online sales tax effort may get swallowed by push for larger tax reform deal”, The Hill, 2/18/13)

Even though some would say the MFA of 2013 is an improvement over last session’s similar proposal, there are still many issues to be worked out. Does the fact that there are two companion proposals on the table increase the changes of the MFA of 2013 being enacted? Keep in mind that when two companion bills are introduced it is highly unlikely – and actually, unnecessary – that both companion bills pass. Only one of the two proposals would ultimately be enacted. And the reality is that if one chamber defeats the proposal, that same chamber would be unlikely to pass the other chamber's similar proposal.

Back in December – as the end of the last Congressional session was approaching, I wrote a post where I predicted new legislation would be introduced, though I didn’t realize it would happen so soon. And so, because it is early in the current Congressional session (the 113th Congress began on January 3, 2013), the reality is that there is still so much that can happen. So as I often say “don’t touch that dial” and stay with us as we continue to report on the push to pass Federal Internet Tax legislation.


Missed my last post? Catch it here: “Internet Sales Tax Legislation: 2012 Review - and 3 Predictions for 2013"

What to see more of my blog articles on Internet Sales Tax issues? See the "Other recent Internet Tax / E-Commerce posts by Sylvia F. Dion" listed below or view my contributor page here at for a full list of my blog articles.

What’s up next? A special update post on State “Amazon Laws”, including what states have enacted them and how the different types of provisions within these laws compare. This will coincide with's launch of the by-state Amazon Law section.

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.


1 Responses to Marketplace Fairness Act 2013: New & Improved from MFA 2012?

  • Posted by Christian on April 22, 2013 11:38pm:

    Hi There, GREAT article. I think the big question is their use of the term SERVICES. Online services will be taxed, whereas services in general have never been taxed (unless regulated). This is a complete back-door to taxation of everything related to services. Let's see, then it creates a precedent for offline taxation of services, where there was none before. Your thoughts? This is my major concern, and yes I do sell online services across the country, as well as physical goods.

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