Is the third time a charm? It’s hard to say if that will be the case for online sales tax legislation. After nearly two years on the Congressional bench, the Marketplace Fairness Act (MFA) is once again up to bat, but it’s still too early to tell if will cross home plate this time.
First introduced in 2011 and again in 2013, the MFA is an attempt by federal lawmakers to level the playing field for brick-and-mortar stores going up against ecommerce businesses. If the bill passes, states that meet tax code simplification requirements can opt-in to require out-of-state sellers to collect sales tax on purchases made online.
The MFA had teeth for a while, making the industry news rounds as opponents and proponents hashed it out over whether the internet should remain a tax-free zone. After initially passing the Senate in May 2013, the bill stalled in the House, where it’s remained for the last 22 months.
So, what’s new in 2015? Not much. MFA 3.0 is virtually identical to versions 2.0 and 1.0. As are the arguments for and against. At this point, a federal ruling may be moot anyway. Tired of waiting on MFA’s fate, several states took matters into their own hands, broadening the rules around nexus (criteria for creating a sales tax obligation) to extend beyond a physical presence to include marketplace selling, click-through and affiliate marketing and Fulfillment by Amazon (FBA). More than 20 states now have laws requiring out-of-state sellers to collect and remit sales and use taxes if they have created sales relationships through these channels. And Amazon, the U.S.’s largest online retailer, now collects sales tax in 23 states.
The States Aren’t Waiting; Neither Should You
Given the states’ actions, merchants shouldn’t wait for a formal invitation from Congress to address the impact of internet sales tax on their business. With 12,000 taxing jurisdictions in the U.S. and more than 14,000 changes to tax rates, rules and boundaries in 2014 alone, sales tax is already complicated and burdensome to manage. With ecommerce sales added to the mix, that complexity will only increase and companies will need to quickly become experts in the sales tax laws of 46 states — no small feat! Faced with an onslaught of new and disparate tax compliance regulations, the odds of overlooking nexus obligations or miscalculating rates are exponentially greater.
Furthermore, in an effort to enforce these new rules, some states are increasing their audit activity; California announced it would add 100 new auditors to its payroll in 2013 in an effort to collect on unpaid internet taxes. This move is not surprising, given what’s at stake: by last count, states are losing out on $23 billion in uncollected sales tax on ecommerce purchases according to the National Conference of State Legislators. There’s no knowing when or even if you’ll be subjected to a state sales tax audit, but a “wait and see” approach may not be the best strategy.
Automate Now or Lose Later
What should you do? Consider automation. Whether or not you need to charge sales tax isn’t something you want to manually decide every time a customer makes a purchase. It’s also not wise to hedge your bets by making a blanket choice to charge or not charge sales tax or to charge a flat rate. Rather, employ tax automation software integrated into your shopping cart or ecommerce system to make those complicated and nuanced decisions for you.
Ecommerce systems and shopping carts are designed to make online sales easier to manage and ensure the business processes specific to your web store are centralized with other areas of your business. When you have better insight and control over inventory, purchases, delivery and shipping it’s easier to make informed decisions about your business. Sales tax automation should be part of this process. When you’re confident the right rates and rules are being applied to every transaction and can easily pull data to support that, it’s much easier to prove compliance and a lot less work for your financial team.
It’s also likely that your customers aren’t following MFA as closely as you are and may still believe they can buy online without paying sales tax. While you can’t magnanimously decide to not charge sales tax to customers, you can ensure that sales tax isn’t a surprise to them. Unexpected costs are the number one reason customers abandon a shopping cart — this includes not knowing the costs of shipping and sales tax at checkout. With sales tax automation integrated into your ecommerce system, shopping cart or point-of-sale system, the correct rate is instantly calculated and applied to taxable purchases.
In the end, the passage or failure of MFA shouldn’t be the catalyst for changing how you handle tax compliance in your business. Enough is happening already at the state level that industry experts and analysts advocate automation as a best practice to protect your business and stay on top of sales tax.