With the U.S. Senate poised to vote on legislation allowing states to require online and other out-of-state merchants to collect and remit sales and use taxes on products and services they sell, companies need to stay alert to potential tax compliance requirements under the proposed law, according to the State and Local Tax practice of KPMG LLP, the audit, tax and advisory firm.
“Should the bill become law, large Internet retailers and other ‘remote sellers,’ such as catalog retailers, would be called on to collect and remit sales and use taxes for an estimated 9,600 state and local taxing authorities throughout the nation, creating potential new tax compliance requirements for businesses,” said Harley Duncan, managing director and state and local tax leader in KPMG’s Washington National Tax practice.
Known as the Marketplace Fairness Act of 2013, the bill allows states to require large Internet retailers and remote sellers in both the consumer and business-to-business areas – with annual remote sales of over $1 million nationally – to collect sales and use taxes and send the revenue to the appropriate location. The Act would also require states to take steps to simplify their sales tax systems. States would need to provide sellers with taxability and exemption information, as well as free software that calculates transaction-level tax, files sales and use tax returns, and is regularly updated to reflect tax rate changes.
“While it’s unclear how states would satisfy their requirements, what is certain is that the bill would call for more sellers to comply with more jurisdictions’ sales and use tax laws,” Duncan added. “Companies that may be affected by the potential new law need to pay close attention to the legislation and new obligations that may be imposed on them.”
Among potential compliance requirements for companies, according to KPMG, will be:
keeping track of business registration requirements in tax jurisdictions where the company conducts sales of goods and services,
determining whether such goods or services are properly classified as “taxable” or “exempt,”
monitoring state and local tax rates for changes,
collecting and remitting the proper amount of tax in a timely manner, and
maintaining records necessary to demonstrate compliance in the event of an audit.
The legislation, if passed, would allow the states to avoid a 1992 Supreme Court decision – made in the early days of the commercial Internet – that ruled that a state could not force a retailer to collect sales tax unless the retailer had physical presence, such as a store or warehouse, in the state. If the Senate approves the bill, it would then need to go to the U.S. House of Representatives for further action.
“The bill currently under consideration is the most recent attempt by states to adapt taxation to the evolving world of Internet commerce,” said Duncan. “Regardless of the outcome, businesses’ information gathering and compliance requirements will continue to evolve as well.”
For commentary from Harley Duncan on the Marketplace Fairness Act of 2013 and the potential tax compliance requirements associated with it, please contact Robert Nihen at 201-307-8296 or Bridget Carroll at 201-505-6501.
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Contact: Robert Nihen/Bridget Carroll