For retailers, there is no piece of legislation being watched more closely than the Marketplace Fairness Act—what some are calling the “Internet sales tax.”

The U.S. Senate approved the act earlier this year, and the House is still considering it. To learn more about the bill and its potential impact on small businesses, Thinking Bigger Business contacted Scott Voss, a tax partner at RubinBrown.

In a nutshell, how would the act work?

Currently, remote Internet retailers are required to charge sales tax only in the states where they have a physical presence or nexus. The Marketplace Fairness Act would require remote Internet retailers to charge a sales tax on all sales. For example, Amazon would now charge tax on all transactions instead of only charging sales tax for customers’ purchases made in states where Amazon has distribution facilities.

Who would benefit from the bill? Who could be hurt?

State and local governments stand to benefit the most from this act. For years, these governments have claimed that Internet sales have eroded their tax revenue. Big box stores and other local retailers would be on a more level playing field since all sales would be taxable, thus making them more competitive with remote Internet retailers. Currently, Internet retailers can offer 8 to 10 percent lower prices than a local retailer.

The act would hurt smaller online retailers that don’t currently have accounting systems in place to deal with the new compliance burden. These retailers also bear the risk of audit and liability if the tax is not collected correctly. Currently, there is a small business exemption for those under a $1 million in sales. However, this is for total sales, not a per-state threshold.

How difficult (or easy) would it be to collect taxes under the act?

The difficulty to collect taxes could be great if systems are not currently in place. The cost of implementing systems, actively managing rate changes and audit compliance are the major hurdles.

Do you think the act is likely to pass the House?

There is a good chance that the bill will pass. However, it is possible that this may not be for another year or two. There is a big push to increase the small business exemption, and as the economy improves, the need to do something quickly for state and local revenue diminishes.

What sort of advice would you give to small businesses?

We suggest remote Internet retailers discuss this matter with their current adviser to:

• Determine if any additional filing requirements currently exist.
• Create a plan for when the act passes and not if it passes.

This will provide retailers with a set course of action well in advance, and preparation is the best strategy for success. No one wants to be just getting under way once a 180-day implementation window is set.