The Marketplace Fairness Act of 2013, which recently passed the U.S. Senate, would allow states and local governments to impose their existing sales tax on internet sales. The legislation also requires states to simplify or “streamline” their sales tax structure to make it easier for online companies to comply with the new requirements.
As passed by the U.S. Senate, states have two options for simplifying the state sales tax. Below is a brief summary of these requirements.
Option 1: A state can join the twenty-four states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA), which has been developed over the last eleven years by forty-four states and more than eighty-five businesses with the goal of making sales tax collection easy. Any state which is in compliance with the SSUTA and has achieved Full Member status as a SSUTA implementing state will have collection authority on the first day of the calendar quarter that is at least 90 days after enactment.
Option 2: Alternatively, states can meet essentially five simplification mandates listed in the bill. States that choose this option must agree to:
- Notify retailers in advance of any rate changes within the state
- Designate a single state organization to handle sales tax registrations, filings, and audits
- Establish a uniform sales tax base for use throughout the state
- Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
As previously reported on Conduit Street, adopting the Streamlined Sales and Use Tax Agreement in Maryland could have fiscal consequences for local governments since local taxes that are not widely imposed or whose rates vary would not be permitted. Local sales and use taxes affected would mainly be those on telephones, energy and other utilities. These revenues total approximately $340 million.
However, Option 2 offers a much better approach that would allow the State to appropriately define the sales tax base for this purpose, which could leave local revenues out of the equation. Should the Marketplace Fairness Act of 2013 become law, MACo believes Option 2 provides the simplest and most appropriate approach for implementation.