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What Businesses Need to Know About Internet Sales Tax Proposals


Posted in on October 17, 2016

For many businesses, collecting sales tax is a normal part of operations. However, sales tax collection has been complicated by the rapid and dramatic rise in Internet transactions.  As the Internet has grown and expanded and more and more commerce has moved online, states have created a hodgepodge of different regulations for how online sales of merchandise are to be taxed.

The issue of taxing Internet transactions is complicated by the myriad of different regulations in different jurisdictions, as well as the fact most e-commerce companies do business nationwide and not just in states where they are based or where they have physical locations.

As the issue of Internet sales tax has become increasingly complicated, federal lawmakers have attempted to make national laws in the past but without success. This political hot button issue is a difficult one to resolve because of pressure from brick-and-mortar businesses to make sure Internet companies are playing on the same playing field, as well as pressure from state lawmakers who want to ensure they are able to capture revenue they are currently missing out on.

As new proposals are put forth, businesses need to be aware of new legal developments that could alter their obligations. A Maryland business tax lawyer can provide advice to businesses on tax rules and can keep companies up-to-date on the issues that affect them.

New Internet Sales Tax Proposals Could Affect Maryland Businesses

The Marketplace Fairness Act is one proposed response to the issue of Internet taxation. The current version of the Act was introduced in 2013 and it passed the Senate, but has not progressed. The Act would allow state governments to collect sales taxes from Internet retailers that sell within their states, even when the retailers have no physical presence within the state. 

The Marketplace Fairness Act would have over-ridden the Supreme Court's decision in Quill v. North Dakota, which was a 1992 case that said states can only require a company to collect sales taxes on transactions if that business has any type of local physical presence, such as a warehouse, office building or in-state employees. 

If a company has no physical presence at all in a state, the state cannot force the company to collect state or local tax. The Marketplace Fairness Act would change the rule, getting rid of the physical presence requirement for tax collection.

The Marketplace Fairness Act has been criticized for imposing burdensome and complex rules on online businesses that would suddenly need to comply with differing tax collection rules in 50 different states.  It was not passed by the U.S. House of Representatives, and it seems unlikely it will be in the foreseeable future.

There is also another proposal, the Online Sales Simplification Act of 2016, which would require Internet retailers to collect taxes based on the tax rules in the seller's home state. The tax rate charged would still be determined based on the home stat of the buyer, but each state would have to set just one single tax rate so retailers wouldn't have to sort through many different local rates.

The single tax rate would not be allowed to be higher than the value of a statewide rate plus a weighted average of local tax rates.  There are still problems, though, including the regulatory burden imposed in calculating and reporting taxes, as well as issues about what happens when a retailer is located in a state that does not impose sales tax.

It remains unclear if the Online Sales Simplification Act of 2016 will end up moving forward, but what is clear is that the issue of taxation of Internet sales is not going away. Businesses need to ensure they stay up-to-date on developments. Kevin Thorn, a business tax lawyer in Maryland, can help.

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