Partner Article

Global online businesses to face compliance challenges with the proposed U.S. Marketplace Fairness Act

Last month, the U.S. Senate passed the Marketplace Fairness Act, legislation that would require out-of-state, and out-of-country, retailers to collect and remit U.S. sales tax on all remote e-commerce transactions within the U.S. While the details will ultimately depend on how the U.S. House formulates its version, the legislation would undoubtedly increase compliance pressure for online businesses globally. This scenario could force businesses across the world to navigate approximately 11,000 taxing authorities in more than 100,000 U.S. ZIP codes, many of which simply lack the resources needed to properly comply.

Calculating the impact

For sellers in other countries, like the U.K., many may have had no prior experience collecting and remitting U.S. sales tax, with most currently only concerned with VAT compliance and the rules around consumption tax.

For UK online businesses, the legislation means higher prices for customers and a substantial increase in the complexity and cost of tax compliance. To put this into perspective, companies need to only look at the cost of compliance incurred from the recent remote selling VAT laws passed by Iceland and Norway, as the current proposals will see a similar cost extrapolated across 46 states.

Preparing for the change

Online shopping usually provides convenience and increased choice; however, it could be facing more complexity. If sales tax is required at the point of e-purchase, for example, the online retailer will be required to match the product to a taxing authority and then apply a tax rate all in a fraction of second. Furthermore, legally, every state operates on a different compliance process, requiring specific forms and deadlines in order to avoid penalties or fees. Ultimately, therefore, the tax compliance cost and related tax risk imposed on the online retailer dealing with the U.S. will likely be substantial.

To help your business successfully prepare for some of the proposed legislative changes, here are some actions to consider:

- Determine where you currently do not collect and pay U.S. sales tax. This law will add all the remainder of states to your filings - Analyse the complexity of your current online product offerings and e-shopping capabilities to plan for the cost of adding a tax calculation - Consider an alternative to managing tax compliance, collection and remittance on your own and outsource the entire online shopping process, including the domestic tax risk

Whether a federal online sales tax passes under the name of “Marketplace Fairness Act” or something different down the road, it’s going to happen. We’ve already seen similar battles play out across the globe, and it’s only a matter of time before the U.S. follows suit. States continue to pass similar rules without waiting for Federal legislation.

So if you want to put your business two steps ahead of the rest, start planning now.

This was posted in Bdaily's Members' News section by Jim Fredlund .