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The Senate votes in favor of the Internet sales tax bill

Earlier this week, the U.S. Senate voted in favor of the Internet Sales tax bill. What does the new bill mean and how will it affect you? Read on to learn more!
May 8, 2013

Raise your hands if you love paying sales tax. Probably not too many hands up. Unfortunately, that’s just part of life, that is unless you shop online.

Currently, many online shops in the United States don’t require you to pay sales tax. This is about to change, at least if the Marketplace Fairness Act makes its way into law.

What’s the Marketplace Fairness Act (MFA)? It is a bill that aims to ensure that online retailers charge sales tax to all their customers, regardless of the state the business is operated out of, or the state that the goods are being shipped to.

Under the guidelines of the bill, this would only apply to those business that make more than $1 million in annual out-of-state sales.

According to its proponents, the bill is not about creating new taxes, as most states already require you to pay a “use tax” for online goods, even when sales tax isn’t collected online. The problem is that few people actually pay the use tax, and there is currently little way to enforce it.

The MFA has already made it through the senate, with a vote of 69-to-27. Now the bill will be passed to the House of Representatives, where it will also need to be approved.

If the bill is passed into law, how will it affect consumers?

Right now, if you go online to buy an item, you don’t have to worry about tax. The exception to that rule is if the business you are buying from has a brick-and-mortar retail location, or warehouse in the state you live in.

If the “Marketplace Fairness Act” goes into affect, any goods you buy online will require you to pay the sales tax rate for the state you live in. What about digital purchases, like music, movies and apps? The answer to that seems to vary, depending on who you ask.

Cnet recently wrote an article indicating that “any business of a reasonable size selling digital goods to the 24 states that have decided to tax them must collect sales taxes.”

What makes the issue even fuzzier is that the Bill’s sponsor, Senator Mike Enzi, says this isn’t the case:

Under the Marketplace Fairness Act, states would be able to apply the same sales tax collected locally to the same product sold online, out-of-state, or through a catalogue. A hammer sold online would be charged the same sales tax as it would be in-store. Since there is no digital good that can be purchased locally, the sales tax would not apply. The Marketplace Fairness Act does not affect the taxability of goods, digital or otherwise. It deals with collection of sales tax already owed under state law.

Of course books are sold both in digital and physical formats, as are music and movies, adding further confusion to the bill in its current form. Either way, if the MFA does end up extending into the realm of digital, it would only affect customers in the 24 states that currently consider digital goods taxable.

Now it is up to the House

For those that oppose the new bill, it isn’t over yet.

The House of Representatives is believed to have a much more mixed opinion of the Marketplace Fairness Act, and opponents of the bill will likely do their best to ensure that the House votes against it. If it does make it through? Then it goes to the President to be signed into law.

Considering that President Obama has already expressed support of the MFA, it pretty much means that the house has the final say.

What do you think of the bill, do you agree that physical goods sold online should be taxed in the same manner as those bought in store?