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Marketplace Fairness Act: The Issues No One is Talking About

author photo of Sylvia F. Dion

On May 6th, the U.S. Senate passed the Marketplace Fairness Act by a majority vote of 69 to 27. Suddenly everyone is talking about the Marketplace Fairness Act since its passage means federal internet tax legislation could become final law. But there’s a lot about the Marketplace Fairness Act that isn’t being talked about – issues and concerns the proposal doesn’t address!

But before delving into these, let’s look at what has happened these past few weeks.

In my last post, I reported on a March 23rd Senate vote which approved an amendment (S.Amdt. 578) that was tacked onto a Senate Budget Bill and which included language relating to the Marketplace Fairness legislation. Although the Senate Amendment vote was non-binding, it was symbolic as it signaled that the Marketplace Fairness proposal could become final law. But just as importantly, it demonstrated that the proposal’s sponsors would take whatever action was necessary to move Marketplace Fairness legislation along as quickly as possible.

And move things along quickly is exactly what the key sponsors did! On April 16th, a new Marketplace Fairness proposal was introduced in the Senate, this one as Senate Bill 743 (“S. 743”). This would be the third Marketplace Fairness proposal introduced to date. (Bicameral Marketplace Fairness proposals were introduced on 2/14/13, as S. 336 and H. 684. For more on these, see my March 18th post, Marketplace Fairness Act 2013: New & Improved from MFA 2012?) When it was introduction on April 16th, S. 743 read identically to S. 336 and H. 684. (Note: Some key changes were made to S. 743 after it was introduced and prior to the Senate vote. I highlight a few of things in my note at the end of the post.)

So why another Senate bill? The sponsors needed new legislation they could move to a floor vote as quickly as possible and for this to happen, the Senate bill would need to circumvent the usual committee and debate process. You see, when a bill is introduced, it’s read a first time, then it’s read again, then it’s assigned to a committee and debated in committee and reported out of committee…… Well, there was just no time for all that!

To expedite the process even more, on April 25th, the Senate overwhelmingly approved a “cloture motion” of S. 743, which is vote that prevents Senators from filibustering, or continuing to debate, a bill and moves the bill to a vote – a vote which was scheduled for May 6th. And when the time came to vote, the proposal was overwhelmingly approved. This action meant that S. 743, the Marketplace Fairness Act (“MFA”), had actually been passed by the Senate and could now move to the House for consideration.

Significant? Definitely, as no prior federal internet tax proposal has ever made it this far!

A done deal? Not quite yet! As indications are that S. 743 will have a much tougher time getting approval from the House, especially since key House members have acknowledged concerns with the proposal.

In the last few days, myself and many of fellow SALT colleagues have been discussing the issues that this “simplification” measure isn’t addressing, and the general lack of understanding (by the public and legislators) of how the MFA will impact “remote” sellers. So here are a few of the issues that no one (other than us state tax folks) seems to be talking about:

  • The MFA’s Impact is NOT Limited to “Internet Only Sellers”, Many Brick-and-Mortar Businesses Will Be Impacted Too: An issue I’ve mentioned several times in the past is that the MFA’s impact will extend beyond “internet only” sellers. Last month, I presented at an Avalara client event and when I brought this up – well, there were a few surprised looks in the audience (and these were tax and accounting folks!). As one of my favorite SALT people, Rusty Little, recently tweeted, “The words ‘online’, ‘Internet’, ‘web’, do not appear in the #MarketplaceFairnessAct.” That’s right! The MFA defines a “remote seller” as a person or entity that makes remote sales “in which the seller would not be legally required to pay, collect, or remit State or local sales and use taxes unless provided by this Act”. This means that any seller – a brick-and-mortar retailer, an equipment manufacturer, etc. - that makes sales to customers in states in which the seller does not have sales tax nexus is considered a remote seller under the MFA. So brick-and-mortar retailers – those very businesses that the MFA is supposed to be leveling the playing field for – could very well find themselves subject to the collection and remittance requirements of the MFA if they make more than a $1,000,000 in sales to non-nexus states!
  • Remote Sellers With Zero or Minimal Taxable Sales Could be Subject to the MFA’s Collection and Remittance Requirements: Wait a minute – doesn’t the MFA have a $1 million small seller exception? Yes it does but the MFA’s $1 million small seller exception is based on total sales – not taxable sales. So a remote seller who primarily or exclusively makes sales for resale could find themselves subject to a state’s registration, collection and remittance requirements in states that have been granted “collection authority” under the MFA. And if you’re thinking that a remote seller who isn’t making any taxable sales shouldn’t have to report their sales to states that implement the MFA because there’s no tax involved – well here’s the point, the MFA doesn’t address this! And here’s another point – a remote seller who makes minimal or even zero taxable sales will now need to collect exemption certificates in every MFA adopting state to support why the remote seller didn’t charge sales tax!
  • Because the MFA Does Not Include a “By-State” Small-Seller Exemption Even a Single Sale into a State Could Require Collection and Remittance: Now contemplate this scenario. Let’s say a remote seller doesn’t meet the MFA’s small seller exception (because the seller’s total annual U.S. remote gross sales are more than $1 million) and the seller has a single customer in a state that has been granted “collection authority” under the MFA. Now let’s say this one customer makes a $10 online purchase from the remote seller. In this scenario, the remote seller is subject to the state’s collection authority and technically, must charge, collect and remit tax on that one $10 transaction. Although this sounds extreme, the point is that because the MFA doesn’t allow states to establish their own small-seller threshold, remote sellers that make nominal sales to customers in states with collection authority would be required to collect and remit tax unless the seller qualifies as a “small seller” under the MFA’s current definition.
  • The MFA Doesn’t Require Notice of Tax Base Changes: Here again we have an issue that’s rarely mentioned. The MFA provides that states must give remote sellers 90 day notice of tax rate changes, but nowhere does the MFA address adequate notice for tax base changes. This means if a state decides to start taxing soda, or candy, or patent leather shoes, a remote seller must know about and incorporate this change. And although the MFA has certain “liability relief” provisions for remote sellers and Certified Service Providers (“CSPs”), they are woefully inadequate given what they are requiring remote sellers to do. I made an analogy yesterday, where I said that Intuit has perfected its TurboTax software for personal income tax preparation and has created a user friendly product. But if you or I don’t enter the right information into TurboTax (because we basically don’t know what that right information is) and we’re assessed by the IRS, Turbotax doesn’t pay for resulting tax deficiency – it’s pretty much on our dime.
  • The MFA Will Require Remote Sellers of Digital Goods to Collect Sales Tax: Although there are many more issues that aren’t being adequately discussed (or discussed at all), I’ll end with this one because, in my opinion, it really highlights the Key Sponsor’s lack of understanding of the issues and impact the MFA could have. Yesterday, I came across an article published in, “Marketplace Fairness Act: Are Digital Download Fair Game?”. The gist of the article was that remote sellers of digital goods could be subject to tax collection requirements under the MFA. You see, just like the MFA never uses the terms “on-line” or “internet” when describing a remote seller, the MFA also never says that sales tax collection is limited to sales of “tangible personal property”. So does this mean that sales of digital downloads that are sourced to states with collection authority could be subject to tax if made by a remote seller who doesn’t meet the small seller definition? I say yes! You see, the MFA uses the SSUTA’s sourcing rules and digital downloads are taxable in some jurisdictions. But what really struck a chord was a quote by Senator Mike Enzi’s spokesperson which included a statement that because digital goods can’t be purchased locally, sales tax would not apply. The Enzi spokesperson also added that “The Marketplace Fairness Act does not affect the taxability of goods, digital or otherwise. It deals with collection of sales tax already owed under state law.” I hate to tell Mike Enzi’s camp this, but the MFA absolutely doesn’t make this clear! And you can bet state tax officials will be looking for any opportunity to interpret the MFA to their benefit. Sadly, the Enzi spokesperson’s statement clearly shows that our legislators don’t quite understand the impact the MFA could have.

Final Thoughts

Well, there you have it - just a few of the MFA issues that simply aren’t getting the attention they should. There are many more, like the fact that a seller may not know if they are a “remote seller” or not since a seller might not realize they already have nexus to a state with collection authority.

But will the MFA actually become law? There are two schools of thought on this question. One is that there’s simply too much momentum for the MFA to die (and I’ll add too much lobbying money too). On the other hand, the MFA faces a much tougher battle in the House, where it has been assigned to the House Judiciary Committee chaired by Representative Bob Goodlatte (R-VA), a legislator that yesterday acknowledged that the MFA has issues. (See, “Goodlatte casts doubt on Marketplace Fairness Act, wants alternatives”, Richmond Times Dispatch, 5/8/13)

As I’ve said before, we could be watching in the making – and I promise to give a blow by blow update!


Note re: changes to S. 743 prior to passage: As I noted above, when it was first introduced, S. 743 read identically to S. 336 and H. 684, however, prior to the vote certain modifications to the proposal occurred. One the most significant changes was in the effective date for SST full member states which was increased from 90 days to 180 days after the State publishes notice of its intent to exercise authority under the MFA. Another was a change in the language regarding the provision of free software for remote sellers, which was changed to note that a remote seller could deploy and utilize a CSP of their choice. I recap more of the changes as an update to my March 18th post, Marketplace Fairness Act 2013: New & Improved from MFA 2012?)

Missed my last post? Catch it here: “Marketplace Fairness Act 2013: What the Symbolic Vote Means"

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? Continued coverage on the Marketplace Fairness Act! Also, a special update post on State “Amazon Laws” (because they won’t go away even if the MFA become final law) 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.


2 Responses to Marketplace Fairness Act: The Issues No One is Talking About

  • Posted by The on August 12, 2013 1:46pm:

    [...] Marketplace Fairness Act: The Issues No One is Talking About [...]

  • Posted by Cory on May 16, 2013 12:37am:

    Great post, as always, Sylvia. A couple of these topics are being heavily discussed by SST as well as they consider the implication impacts of MFA. Sounds like most member states share these same concerns that have been raised by the SALT and business community in general.

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