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The Marketplace Fairness Act, sometimes referred to as the "internet tax," is currently in the Senate and is showing signs it'll likely pass. This means you'll get taxed for all your online purchases, no matter what state you're in. Here's what it's all about, how it works, and what you can expect if it passes.
What the Marketplace Fairness Act Is
The Marketplace Fairness Act is a bill currently in the Senate and the House that will require you to pay sales tax on all online purchases (you can read the full bill here). Today, the Senate cleared the way for a final vote on the bill, which will happen on May 6. President Obama also threw in his support for the bill earlier this week. This is the second time the bill has been in the Senate. When it was introduced in 2011 it failed, but it's looking more likely it'll pass at least the Senate this time around (it might see a little trouble getting through the House of Representatives).
The bill itself is incredibly simple. Currently, only online retailers with brick and mortar stores in the state you live in charge sales tax for your online purchases. So if you have a Best Buy in your state and you order from Bestbuy.com, you have to pay sales tax. If you don't have a Best Buy in your state, you don't pay sales tax. If this bill passes, your state will collect sales tax from all online purchases you make. That means that if you buy something from Amazon, Best Buy, Monoprice, or pretty much anywhere else, you'll pay sales tax to the state you live in. Smaller retailers that make less than $1 million a year will be exempt, so you probably won't have to charge sales tax on that Nintendo Wii you have up on eBay right now.
That's really it. The Marketplace Fairness Act hopes to make the broad sales tax laws that differ from state to state universal in order to make it easier for online retailers to pay taxes, and for states to collect taxes on what its citizens are buying.
Who's For It
A number of senators, house representatives, and online business are for the Marketplace Fairness Act. For senators and house members, it's about bringing in more income to their states, but for online retailers it's about creating a sense of normalcy across their billing. Even Amazon, who once stood against the Marketplace Fairness Act, is now for it. Daily Finance has this statement from Amazon:
"Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers," Amazon VP Paul Misener wrote in a letter supporting the bill. "With this in mind, I am writing to thank you for your bill, which will allow states with simplified rules to require sales tax collection by out-of-state sellers who choose to make sales to in-state buyers."
It's not just Amazon, a number of businesses have stepped up in support of the bill because it makes their jobs a little easier. Most brick and mortar stores also support the bill since it ensures that their competition also has to pay state sales tax.
Who's Opposed to It
As you'd expect, some retailers and politicians oppose the bill. Part of that comes from the nightmare of logistics. As The New York Times points out, retailers "would have to keep track of more than 9,000 sales-tax regimes" which complicates the taxing process for online businesses. The biggest retailer to oppose the bill is eBay. For its part, eBay sent emails to about 40 million users asking them to oppose the bill:
"This legislation treats you and big multi-billion dollar online retailers—such as Amazon—exactly the same," Donahoe wrote. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."
Ebay wants to see the income limit for online retailers lifted to from $1 million to $10 million to ensure that more online businesses are exempt from paying the sales tax. As you'd expect, many politicians who are opposed to taxation in general are also against the bill, especially those from states like Oregon, Montana, and New Hampshire that have no sales tax.
How the Marketplace Fairness Act Will Affect You
This part's pretty simple: if you purchase products online, you're going to start paying a sales tax for them as long as you live in a state that has a sales tax. This only includes purchases from big retailers though. As we mentioned above, if a business brings in less than $1 million a year, they don't have to pay the sales tax. So, if you buy (or sell) something on eBay or Etsy, you probably won't have to deal with sales tax. These aren't new taxes, the Marketplace Fairness Act just makes it so online retailers have to collect sales tax based on the state you're in.
It's also worth noting that this bill only affects tangible goods. It won't have an effect on web services or subscriptions you have. So, you don't need to worry about suddenly being taxed for your Dropbox or Netflix account.
If you want to contact your senator to let them know how you feel about it, you can find your their contact info on ContactingTheCongress. Just be sure to follow our guide to keep your letter short and civil. Of course, businesses have a bunch of other benefits and downfalls to consider if the bill passes, but for most of us the Marketplace Fairness Act is only about new sales taxes for online purchases.