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Internet sales tax: Four things CPAs need to know

Nothing is simple when it comes to taxation these days, is it?

Take Internet sales, for example. Do we tax them? Who has jurisdiction? Who gets the revenue?

No easy answers there, but Congress is trying to find some via the Marketplace Fairness Act.

The bill sailed through the Senate and is hitting some rough waters in the House, and pros and cons abound.

Still, its sponsors hope it will address a decidedly modern issue: How do you tax products and services in a borderless world?

The Internet is great at tearing down walls. if you're a Maryland-based company and you sell something online to someone who lives in Missouri, who gets the sales tax revenue? Should sales taxes apply at all?

Great questions, and the folks at Avalara are trying to come up with some answers.

Avalara's Ray Bigley spent some time with me recently to outline what CPAs need to know about the proposed legislation. He boils it down to these key areas:

  1. The proposal calls for a $1 million threshold, including exemptions.
  2. Regardless of what your client sells, existing state product taxability rules apply. "If I'm a company and I'm selling into California, California law applies to those products," Bigley said.
  3. Adoption is state dependent. According to Bigley, the 24 states that are part of the Streamlined Sales Tax Agreement will likely adopt the legislation easily, should it become law. Other states -- including Maryland -- have indicated they might support the agreement but have not yet passed the necessary legislation.
  4. If the proposed legislation is passed and signed into law, businesses that sell over the Internet will be required to collect sales taxes and then remit and file returns, perhaps in jurisdictions where they haven't previously filed.

Those will be moot points if the bill stalls in the House, of course. Stay tuned.

In the meantime, listen to my interview with Bigley in its entirety:


Bill Sheridan