US: Internet Sales Tax is coming?

It might well happen that in the not so far future all US online vendors with over $1 million in annual online revenue will be required to pay state and local taxes to the governments that their customers reside in. There are more than 9.600 different state and local tax jurisdictions within the US. This news makes issues related to the upcoming EU VAT 2015 ebiz changes look like a piece of cake.

A federal Marketplace Fairness Act was submitted to the US Congress in February 2013 and aims to substantially reform the taxation of the ecommerce industry in the US. PwC’s summary on the bill can be accessed here. For some more information on the taxation of internet transaction in the US we suggest you to read this report.

The new bill (if passed) should result in increased tax revenues all over the US. It is meant to put online vendors on equal standing with “brick and mortar” stores in regard to tax collection. Currently most of the online vendors do not charge sales tax unless they have some sort of physical presence (i.e. “nexus“) in the state where they are selling to, while “brick and mortar” stores have to charge local sales tax at their location. This is the legacy of the Internet Tax Freedom Act of 1998.

The bill will also impose additional compliance requirements for online vendors, which could (and depending upon their business model they most probably will) end up with having to account for sales tax in a large number of tax jurisdictions at huge number of different tax rates – as opposed to “brick and mortar” stores, which in principle account only for sales tax only at their own location. Some warn, that this might end up as a too big burden for a lot of small and middle online business which could face difficulties to comply with all the various compliance and other administrative obligations.

Recent media reports suggest that the legislation may be accepted rather quickly. The development around this bill and the results of votes can be monitored here. Out of curiosity you can also check the list of organizations supporting and opposing the Marketplace Fairness Act.

Feel free to contact us if you need any further information on this topic.