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The Marketplace Fairness Act of 2013

August 1, 2013 in Feature Story

A bill that has already passed in the Senate, the Marketplace Fairness Act of 2013, is currently being deliberated on by the House of Representative, and could mean a significant cost increase for classic car enthusiasts. The bill will require that online retailers who report more than $1 million in revenue collect sales tax at the time of a transaction, no matter where the recipient of that transaction is located.

Marketplace-Fairness-Act

Image from Namm.org

You probably noticed that when you make a purchase from many online retailers, that the purchase is exempt from sales tax at the time of the transaction. Currently, companies with an online presence are not required to collect taxes on behalf of the states they have no physical presence in. In most states, it falls on the consumer to report online purchases when filing their taxes, a law that is difficult to mediate and rarely enforced.  Many collector car buyers are already familiar with paying tax on a collector car at the time they register it, but in some states, a car purchased on the other side of a state line can result in it being “tax free.” The Marketplace Fairness Act of 2013 will change that, and collector car purchases made from a dealer across state lines will be subject to immediate sales tax, potentially adding thousands to the cost of the car.

The bill as written will create potentially insurmountable hurdles for small internet businesses as well, as it effectively forces them to become tax-collecting agents for states they have no physical presence in. Businesses that conduct transactions online will be expected to comply with the laws of each of the existing 9,600 jurisdictions, and be required to file monthly tax returns in 46 states. Failure to do so will open them to audits by each state. There is currently no precedence for a state exerting authority over non-residents. 

The cost of compliance with the new law could stretch well be beyond the capacity of many small businesses to endure.  Software and personnel additions needed to maintain compliance with the vast web of dissimilar tax laws could easily tip businesses working on a small profit margin into bankruptcy. An article by Forbes magazine pointed out that while $1 million in revenue may seem like a high cut-off for the bill, it is easy for small internet companies, working with a national or global consumer base, to meet or exceed this cap while operating on very small profit margins and very little staff. While massive corporations could absorb the additional administrative costs, small companies could find themselves unable to comply and be put out of business.

The bill remains in the House of Representatives, with no date listed for when it will be voted on. The President has declared support for the bill, and it’s possible that the bill will eventually pass, hopefully after concerns about complicated inter-state tax laws have been addressed.  You can read the bill here.

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