(Last updated: Dec. 22, 2014)
The Marketplace Fairness Act of 2013, which was introduced in the Senate by Senator Mike Enzi and 29 other Senators, passed the Senate with an overwhelming, bipartisan vote of 69 to 27 on May 6, 2013. An identical bill, H. 684, was introduced in the House, but stalled, even after a strong push in fall of 2014, after Speaker John Boehner refused to bring the bill to a vote before the end of the 113th Congress.
The Marketplace Fairness Act would allow states that met certain conditions to require large internet and mail-order retailers to collect state and local sales taxes. As the bill’s preamble states, its intended purpose is “to restore States’ sovereign rights to enforce State and local sales and use tax laws.”
Under the bill, to exercise this authority, a state must either 1) adopt legislation implementing the provisions of the Streamlined Sales and Use Tax Agreement, which requires states to adhere to uniform definitions, filing requirements, and other rules regarding sales tax collection, or 2) adopt legislation to exercise the state’s authority under this act and meet the minimum specifications the act spells out, including providing remote sellers with free and regularly updated software to collect and remit sales taxes.
The Marketplace Fairness Act of 2013 exempts online and catalog retailers that have less than $1,000,000 a year in out-of-state sales from having to collect sales tax.
For more background on this issue, see our Internet Sales Tax page.
To restore States’ sovereign rights to enforce State and local sales and use tax laws, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “Marketplace Fairness Act of 2013”.
SEC. 2. AUTHORIZATION TO REQUIRE COLLECTION OF SALES AND USE TAXES.
(a) Streamlined Sales and Use Tax Agreement—Each Member State under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception described in subsection (c) to collect and remit sales and use taxes with respect to remote sales sourced to that Member State pursuant to the provisions of the Streamlined Sales and Use Tax Agreement, but only if any changes to the Streamlined Sales and Use Tax Agreement made after the date of the enactment of this Act are not in conflict with the minimum simplification requirements in subsection (b)(2). A State may exercise authority under this Act beginning 180 days after the State publishes notice of the State’s intent to exercise the authority under this Act, but no earlier than the first day of the calendar quarter that is at least 180 days after the date of the enactment of this Act.
(b) Alternative—A State that is not a Member State under the Streamlined Sales and Use Tax Agreement is authorized notwithstanding any other provision of law to require all sellers not qualifying for the small seller exception described in subsection (c) to collect and remit sales and use taxes with respect to remote sales sourced to that State, but only if the State adopts and implements the minimum simplification requirements in paragraph (2). Such authority shall commence beginning no earlier than the first day of the calendar quarter that is at least 6 months after the date that the State—
(1) enacts legislation to exercise the authority granted by this Act—
(A) specifying the tax or taxes to which such authority and the minimum simplification requirements in paragraph (2) shall apply; and
(B) specifying the products and services otherwise subject to the tax or taxes identified by the State under subparagraph (A) to which the authority of this Act shall not apply; and
(2) implements each of the following minimum simplification requirements:
(i) a single entity within the State responsible for all State and local sales and use tax administration, return processing, and audits for remote sales sourced to the State;
(ii) a single audit of a remote seller for all State and local taxing jurisdictions within that State; and
(iii) a single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.
A State may not require a remote seller to file sales and use tax returns any more frequently than returns are required for nonremote sellers or impose requirements on remote sellers that the State does not impose on nonremote sellers with respect to the collection of sales and use taxes under this Act. No
local jurisdiction may require a remote seller to submit a sales and use tax return or to collect sales and use taxes other than as provided by this paragraph.
(B) Provide a uniform sales and use tax base among the State and the local taxing jurisdictions within the State pursuant to paragraph (1).
(C) Source all remote sales in compliance with the sourcing definition set forth in section 4(7).
(i) information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the State and a rates and boundary database;
(ii) software free of charge for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect rate changes as described in subparagraph (H); and
(iii) certification procedures for persons to be approved as certified software providers.
For purposes of clause (iii), the software provided by certified software providers shall be capable of calculating and filing sales and use taxes in all States qualified under this Act.
(E) Relieve remote sellers from liability to the State or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a certified software provider.
(F) Relieve certified software providers from liability to the State or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.
(G) Relieve remote sellers and certified software providers from liability to the State or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the State.
(H) Provide remote sellers and certified software providers with 90 days notice of a rate change by the State or any locality in the State and update the information described in subparagraph (D)(i) accordingly and relieve any remote seller or certified software provider from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.
(c) Small Seller Exception—A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000. For purposes of determining whether the threshold in this section is met, the gross annual receipts from remote sales of 2 or more persons shall be aggregated if—
(1) such persons are related to the remote seller within the meaning of subsections (b) and (c) of section 267 or section 707(b)(1) of the Internal Revenue Code of 1986; or
(2) such persons have 1 or more ownership relationships and such relationships were designed with a principal purpose of avoiding the application of these rules.
SEC. 3. LIMITATIONS.
(a) In General—Nothing in this Act shall be construed as—
(1) subjecting a seller or any other person to franchise, income, occupation, or any other type of taxes, other than sales and use taxes;
(2) affecting the application of such taxes; or
(3) enlarging or reducing State authority to impose such taxes.
(b) No Effect on Nexus—This Act shall not be construed to create any nexus or alter the standards for determining nexus between a person and a State or locality.
(c) No Effect on Seller Choice—Nothing in this Act shall be construed to deny the ability of a remote seller to deploy and utilize a certified software provider of the seller’s choice.
(d) Licensing and Regulatory Requirements—Nothing in this Act shall be construed as permitting or prohibiting a State from—
(1) licensing or regulating any person;
(2) requiring any person to qualify to transact intrastate business;
(3) subjecting any person to State or local taxes not related to the sale of products or services; or
(4) exercising authority over matters of interstate commerce.
(e) No New Taxes—Nothing in this Act shall be construed as encouraging a State to impose sales and use taxes on any products or services not subject to taxation prior to the date of the enactment of this Act.
(f) No Effect on Intrastate Sales—The provisions of this Act shall apply only to remote sales and shall not apply to intrastate sales or intrastate sourcing rules. States granted authority under section 2(a) shall comply with all intrastate provisions of the Streamlined Sales and Use Tax Agreement.
(g) No Effect on Mobile Telecommunications Sourcing Act—Nothing in this Act shall be construed as altering in any manner or preempting the Mobile Telecommunications Sourcing Act (4 U.S.C. 116-126).
SEC. 4. DEFINITIONS AND SPECIAL RULES.
In this Act:
(1) Certified software provider—The term “certified software provider” means a person that—
(A) provides software to remote sellers to facilitate State and local sales and use tax compliance pursuant to section 2(b)(2)(D)(ii); and
(B) is certified by a State to so provide such software.
(2) Locality; local—The terms “locality” and “local” refer to any political subdivision of a State.
(3) Member state—The term “Member State”—
(A) means a Member State as that term is used under the Streamlined Sales and Use Tax Agreement as in effect on the date of the enactment of this Act; and
(B) does not include any associate member under the Streamlined Sales and Use Tax Agreement.
(4) Person—The term “person” means an individual, trust, estate, fiduciary, partnership, corporation, limited liability company, or other legal entity, and a State or local government.
(5) Remote sale—The term “remote sale” means a sale into a State, as determined under the sourcing rules under paragraph (7), in which the seller would not legally be required to pay, collect, or remit State or local sales and use taxes unless provided by this Act.
(6) Remote seller—The term “remote seller” means a person that makes remote sales in the State.
(7) Sourced—For purposes of a State granted authority under section 2(b), the location to which a remote sale is sourced refers to the location where the product or service sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no delivery location is specified, the remote sale is sourced to the customer’s address that is either known to the seller or, if not known, obtained by the seller during the consummation of the transaction, including the address of the customer’s payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. A State granted authority under section 2(a) shall comply with the sourcing provisions of the Streamlined Sales and Use Tax Agreement.
(8) State—The term “State” means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and any other territory or possession of the United States, and any tribal organization (as defined in section 4 of the Indian Self- Determination and Education Assistance Act (25 U.S.C. 450b)).
(9) Streamlined sales and use tax agreement—The term “Streamlined Sales and Use Tax Agreement” means the multi-State agreement with that title adopted on November 12, 2002, as in effect on the date of the enactment of this Act and as further amended from time to time.
SEC. 5. SEVERABILITY.
If any provision of this Act or the application of such provision to any person or circumstance is held to be unconstitutional, the remainder of this Act and the application of the provisions of such to any person or circumstance shall not be affected thereby.
SEC. 6. PREEMPTION.
Except as otherwise provided in this Act, this Act shall not be construed to preempt or limit any power exercised or to be exercised by a State or local jurisdiction under the law of such State or local jurisdiction or under any other Federal law.
Passed the Senate May 6, 2013.