There is a great deal of publicity in the United States surrounding pending federal legislation that may necessitate the need for more online retailers and business-to-business (B2B) sellers to collect sales tax. It is essential for those companies to ensure they don’t overlook anything they are required to do under the new law once it is enacted.
Design and Highlights of the Bill
Businesses became concerned when the U.S. Senate passed a bill in 2013 that would allow states to increase their collection of sales taxes via online and catalog-based sellers. Businesses were concerned about the potential for collection costs and the need to remit taxes across approximately 10,000 tax jurisdictions. There were additional concerns about the possibility for tax audits in any of the 45 states and the District of Columbia that charge sales tax on most purchases. The Senate calls the bill the Marketplace Fairness Act and includes legal directives for both online and catalog wholesalers and B2B sellers.
Wholesalers are usually not required to process sales tax providing the intended purpose of the purchase is for resale. There are many other exemptions that are specific to the industry; for example, an agricultural business would not need to pay tax on the products it buys for agricultural purposes.
One thing wholesalers need to remember is the buyer must provide them with an exemption certificate. In addition, the legislation requires the seller to have the certificate available for viewing in order to justify the decision to not collect taxes on the purchase.
It is highly likely that many internet B2B sellers are failing to follow the law in this respect according to a lawyer who specializes in sales tax law. Under current federal law, states cannot require an internet commerce seller to collect taxes on sales in states where it does maintain a physical presence of some sort. Many B2B sellers, wholesalers, and retailers may not take the time to request a tax-exemption certificate from customers who have a domicile in states where they do not have a physical presence or nexus. Those B2B sellers and retailers may consider this requirement under the new legislation as an unnecessary expense.
If the Marketplace Fairness Act is enacted in full, it will mean internet retailers and B2B sellers will have the responsibility to collect taxes on sales even if they do not have a physical presence in a particular state. Sometimes problems occur because of oversight on the part of B2B sellers who allow sales to go through that are not covered under the exemption certificate. It is cases like this where the government may actually revoke your business license and seize inventories until taxes or proper documentation is filed.
Seller Beware: with this new legislation, what B2B sellers don’t know about the new tax laws could actually bring about the death of their business.