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The Marketplace Fairness Act Essay

2116 words - 8 pages

It is no secret consumers enjoy shopping online, especially on websites such as Amazon, Ebay, and Overstock.com, where no sales tax is collected. As obeying, tax-paying citizens, all consumers are required to report on their income tax return the total amount spent on tax-free purchases, but reality reveals that very few consumers actually do. All an individual has to do is go to their state’s government website and download the tax form to keep track of their tax-free online purchases. For instance, the Louisiana governmental website allows individuals to download the R-1035 form to report their purchases every month. Alternatively, the consumer could report all of the purchases multiplied by an 8% tax rate (Louisiana Department of Revenue, 2012). The “use tax” as it is called, would go to the buyer’s state/local government. Additionally, the individual/business who sells the product is required to pay state income tax to the buyer’s state government. The result of the consumers and sellers not reporting the “use tax” has created a multi-billion dollar issue. An estimated $23 billion was forgone because of the lack of reporting. Reporting these taxes is not the only problem (Yang 22). Another issue arises between the online retailers and brick-and-mortar business owners who believe the tax-free purchases hurt their business. The problems created by this issue, if fixed and enforced, could help fix many financial problems for state and local businesses. What is Congress doing to alter the problem?

Consumers and businesses both have many misconceptions about the collection of sales tax over the Internet. Many believe that the Internet Tax Freedom Act was placed into law to disallow states from requiring taxes on out-of-state online retailers. However, it actually forces to states to not place numerous and/or discriminatory taxes on Internet sales. There is also confusion regarding what is Constitutionally acceptable in the online marketplace. Many consumers and businesses believed that taxing products over the Internet was not allowed. . This misconception was cleared up in infamous Quill Corp. v. North Dakota case, which created the “nexus” law. This case has greatly effected the taxation of Internet sales. It stated that there must be a large physical presence of a company in a state for that state to lawfully require the company to collect taxes inside the state (Andes & Atkinson, 2013). With the growth of the Internet, many of these misconceptions are attempting to be understood through various forms of legislation.

In 2013, Congress introduced the Marketplace Fairness Act. It provides state governments the authority to tax out-of-state sellers without premise of having “physical presence” in the state, which is what the Quill case required. Therefore, neither in-state sellers nor out-of-state sellers will not have an advantage over another because of the tax code. This ruling is based on economic nexus. It would no longer be required that a...

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