May 10, 2013
The Marketplace Fairness Act passed the U.S. Senate on Monday, and as the measure moves closer to becoming law we wanted to share answers to some of the question we’ve been getting about this legislation and its implications for the industry. Please remember that none of these answers constitute legal advice on the matter. We encourage you to stay informed and consult with your attorney before taking any action.
Question: What does the Marketplace Fairness Act mean for advertisers?
First, it’s important to note that the Marketplace Fairness Act is not yet law. It passed the U.S. Senate on May 6 but it now moves on to the U.S. House of Representatives for debate, which could take weeks or months. Our attorney, Gary Kibel, says it’s possible this will never by voted upon by the House. If the measure passes the House and becomes law, it would take effect on a state-by-state basis. It couldn’t be enacted until the state simplifies current tax law. More than 20 states have already done so in anticipation of this would-be law.
Question: Does this mean that any retailers that do not have their shopping carts set up to collect tax from each state now have to adjust their sites to do so?
That depends. Retailers with less than $1 million a year in out-of-state sales would be exempt. Also, no sales tax would be collected from customers in a state that doesn’t have a sales tax (unless of course the state enacts a sales tax).
If this becomes law states will be allowed to require all online sellers to collect sales tax regardless of whether they have a physical presence in the state. States that decide to participate would have to simplify their tax systems and pay for sales tax collection software. And no new national sales tax would be created. Those affected by this are retailers with more than $1 million in out-of-state sales, regardless of whether they are a pure-play or multichannel retailer.
According to the PMA: “The bill contain a new approach to sales tax reform, a ‘no-nexus’ concept that simply allows states to require out-of-state retailers to collect their sales taxes. The ‘no-nexus’ approach lets states keep their current sales tax policies in place, a critical requirement in getting bi-partisan support, and necessary to ensure passage. Since all retailers (online and offline) would be required collect sales tax on all purchases, online retailers will be able to reinstate their affiliate programs.”
Would this also mean that any non-solicitation agreements that are in place for affiliates would become void?
Not necessarily. If an affiliate signed an agreement with a marketers not to engage in certain activities, that is still a binding agreement between the parties despite the new law. The parties to that agreement would have to agree to void/terminate the agreement. Our attorney, Gary Kibel, said he assumes everyone would want to do so.
As the PMA explained in their press release today: “The ‘Affiliate Nexus Tax’ laws created a loophole for over 1,000 online retailers: they could avoid collecting sales tax for those 9 states if they sever advertising agreements with these 76,000 Internet advertising businesses. The results were not at all what was intended: these 9 states not only did not collect new sales taxes from online retailers, but they lost income tax revenue from the devastation to the incomes of those 76,000 small businesses.”
Question: If retailers will be collecting sales taxes in all states will the retailers be able to work with any publisher regardless of if there is a Nexus law in their state?
The PMA answered this one, too: “Passage of the Marketplace Fairness Act will require all retailers, whether online or offline, to collect sales tax for all states, and remove the ability to avoid collection obligation if they sever Internet advertising agreements,” said Rebecca Madigan, executive director of the Performance Marketing Association. “This will allow online retailers to reinstate their advertising agreements and get 76,000 small Internet advertising companies back in business.”
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