Closing The Internet Sales Tax Gaps – Who Wins And Who Loses?

A 2013 guest-post analysis of the Marketplace Fairness Act debate over remote-seller sales tax — and what has happened to that debate since.

2026 update: This post documents the legal landscape as it stood in late 2013, when the Marketplace Fairness Act was working its way through Congress. The framework the post describes — under which a state could only require sales-tax collection from sellers with an in-state physical presence — was fundamentally overturned in South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018). The Supreme Court overruled Quill Corp. v. North Dakota (1992) and held that the physical-presence test was incorrect; states may now require remote sellers to collect sales tax on the basis of “economic nexus” alone. Most states have since adopted economic-nexus thresholds (commonly $100,000 in sales or 200 transactions per year) and “marketplace facilitator” laws that put collection responsibility on platforms like Amazon, eBay, and Etsy. The Marketplace Fairness Act itself was never enacted — but the policy outcome it sought has been delivered by the courts and by state legislation. Read the post below for the historical debate; treat any specific compliance question under the current Wayfair regime, not the 2013 framework.

In this guest post, Matthew Brennan, a marketing writer writing on behalf of The Hays Firm, LLC in Chicago, discusses the debate surrounding an Internet sales tax as it stood in 2013. The views expressed in this article are Mr. Brennan’s own.

Any time a consumer makes a purchase online from an out-of-state retailer, they are supposed to fill out and file the paperwork, and pay the associated sales tax.

That burden is currently on the consumer. Since it is often not paid anyway, lawmakers are currently searching for a way to shift that burden from consumers to the sellers. A bill called the Marketplace Fairness Act is making its way through the United States Congress, and it would place the burden of paying the sales tax for the state that the buyer is located in, on the seller.

Currently the seller is only responsible for any state sales taxes if they have a physical location, such as a storefront or a warehouse, within that state.

Congress originally placed a tax exemption on businesses not generating $1 million in revenues annually. It remains to be seen whether a final version of the bill will include that exemption.

A large motivator for creating the bill came from a University of Tennessee study that revealed $12 billion in sales tax goes uncollected annually because online retailers are not charging sales tax.

Who Wins

Larger retailers, like Target, and the National Retail Federation are proponents for the bill, because they feel like it will level the playing field between stores with a large physical presence, and online sellers. Many of these large retailers already have locations in several states, so they’re responsible for paying the state sales taxes already.

Online giant Amazon has shifted their stance on the bill, to support it. As the company grows, they’ve expressed interest in building more physical locations around the country in order to expedite the shipping process.

Who Loses

Consumers who have been lax about filing sales taxes will not have a way around it anymore. What once existed as a tax haven for online purchasers will disappear as soon as their favorite retailers are required to charge. It would remain to be seen in the early days of enactment whether or not these additional charges on purchases would impact sales.

If the $1 million tax exemption is stripped from the final piece of legislation, small businesses could be hit hard with new requirements. The software that will help keep businesses in compliance could cost tens of thousands of dollars, and just as much to maintain.

The Bottom Line

An online sales tax could drastically impact the way that business is done in the United States. It is seen as a way to level the playing field between the online and offline marketplace.

It could force several smaller online retailers into rethinking the way that they do business online. The burden of adhering to thousands of different tax codes from buyers’ various states could easily become overwhelming.

The Senate has already passed the legislation, which has since moved on to the House of Representatives, where there could be some major overhauls on the bill. Previous versions have not made it out of Congress.

Author Bio

Matthew Brennan is a marketing writer based in the Chicago area. He has written on content marketing, blogging, and audience engagement, and his work has appeared on ProBlogger, Soshable, and Business2Community.

Disclaimer: This post is for informational purposes only and is not legal advice — and the legal landscape it describes has been substantially superseded by South Dakota v. Wayfair (2018) and subsequent state legislation. Consult a qualified state-and-local-tax attorney about your current compliance obligations.

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