As holiday shopping kicks into high gear, the feds are revisiting a proposal to expand the requirements for online retailers to collect state sales taxes from their U.S. customers, regardless of whether the retailers have a physical presence in the state, such as a store or office. The proposed federal law, the Marketplace Fairness Act of 2013, would apply to online sales in all 50 states, presence or not. The U.S. Senate has already passed the legislation, and Congress wants to revisit it before recess on Dec. 11. House Republicans oppose the legislation from business and regulatory standpoints.
Massachusetts is one of 14 states with a physical presence requirement. Under Mass. law Ch. 64H Section 1, the “physical presence” definition requires companies with a retail outlet, a warehouse, an office, or even a sales representative in the state to collect and remit state sales tax. Among them is Amazon, due to its Cambridge office and a tech firm it established in North Reading. However, exempt at this point are the growing numbers of third-party vendors that use Amazon’s site. Under the proposed law, they’d be non-exempt.
With changing national trends in online shopping coming to the fore in the last year – such as “web-rooming” gaining prominence over “showrooming” – what better time to raise the issue again at the federal level and push the point – particularly since the September U.S. stock debut of Chinese online retail giant Alibaba. It’s in the same market space as Amazon.
For those who don’t work in retail, “showrooming” customers visit a store to examine an item of interest – and then order it online for less from retailers who don’t have the overhead costs of stocking dozens or hundreds of stores. “Web-rooming” is the opposite, with customers doing online research before going to a retail store to buy on the spot.
Online shopping benefits both customers and retailers, with more savvy consumers visiting more stores. Preliminary reports on this most recent Black Friday cite less foot traffic but more of those customers coming in ready to buy.
But, back to the law, which always lags trends. The proposed federal law exempts any online retailer with gross annual revenues of less than $1 million in online sales. Yet to be determined is how the expense of collecting state sales taxes could be deductible as a business expense.
There’s another boulder on this rock pile. A nagging, but consistent point made for years, is that online shoppers in states with sales taxes should file a state Use Tax report on their online purchases. Few do and state governments have not been aggressive in pursuing this to date. But it may come under increased scrutiny as the Marketplace Fairness Law wends its way through Congress.
So, happy online shopping to all this cyber-season, and here’s hoping that small-business retailers will benefit from the coming of age of online shopping as much as newly-savvy customers.
