Posted by: Kevin Loo, Senior Vice President of Product Development
In 1992 the Supreme Court ruled that Internet and mail order companies were only required to collect sales taxes in states where they had an actual physical presence whether it was a store, an office or a warehouse. But that may be about to change. The Marketplace Fairness Act of 2013 is poised to overturn this longstanding physical presence standard and online and catalog retailers need to be ready to collect and remit sales taxes in more than 9,000 sales tax jurisdictions using destination-based sourcing. This new law has the potential to affect almost every merchant selling on the Internet as early as late 2013.
At the present time, the Federal government is considering legislation that would allow states to require retailers not physically located in their state to collect sales taxes on online and catalog sales made to customers located in their state. This legislation, the Marketplace Fairness Act of 2013 was easily passed by the Senate in early May and is now on its way to the House for a final vote before President Obama signs this into law. The proposed legislation will impact merchants with remote sales over $1,000,000 annually. “We think this is inevitable, with states looking for revenue, with the growth of e-commerce,” said Stephen Schatz, a spokesperson for the National Retail Federation. With the explosion in online shopping, it is estimated that $22 to $24 billion in taxes is currently going uncollected. To date, 24 states have adopted the SSUTA (Streamlined Sales and Use Tax Agreement) although they have done very little to actually streamline tax calculations, collections or filing requirements. Online and catalog retailers will need to code each line item in each sale by zip code and product(s) as sales taxes can vary by city, county and products sold, creating massive record keeping challenges for retailers. Retailers would need to be ready to implement the processes required to collect and remit sales taxes and all related forms and filings to all states and local jurisdictions where they do business. E-commerce platform providers are scrambling to address these requirements. Automating sales tax calculations using destination-based sourcing along with relevant data capture through order management software will enable retailers to more easily comply with this legislation.
Contact us today for more information and to see how we can help you with your order, inventory and customer management needs.