The Marketplace Fairness Act and what it means for eCommerce entrepreneurs

Industry News

Unless you've been living in a cave (albeit, a very happy cave), anyone involved with eCommerce has likely heard about the Marketplace Fairness Act (MFA). Better known as the Internet sales tax bill, the legislation would essentially force online retailer to pay sales tax on each purchase. Under current laws, customers are supposed to pay taxes from Web purchases on their own accord, but let's be real, who does that?

The MFA would reportedly help state governments collect $11 billion in lost tax revenue according to a 2009 report from the University of Tennessee. For merchants, that fact is irrelevant; the bigger issue is that the law makes shopping online more expensive for consumers and complex for retailers.

MFA drawbacks
It's no secret that one of the core benefits of shopping online from the consumer's perspective is that they are able to get better prices than in traditional brick-and-mortar stores. In fact, many physical retail locations have even implemented price-matching programs specifically to help them compete with the rise of online shopping. If prices go up 5 to 10 percent due to sales tax, consumers may be less motivated to purchase from eCommerce merchants.

In fact, a survey conducted by online postage vendor Endicia found that 61 percent of U.S. residents don't support the MFA because of the increased costs – a major detractor during a time when many customers are watching how they spend their income. Nearly half of respondents (44 percent) said they would buy fewer products online if the law was approved.

The other element is the additional complexity that collecting sales tax brings to the table.

The MFA would reportedly help state governments collect $11 billion in lost tax revenue according to a 2009 report from the University of Tennessee. For merchants, that fact is irrelevant; the bigger issue is that the law makes shopping online more expensive for consumers and complex for retailers.

For brick-and-mortar retailers, charging sales tax is a relatively simple procedure, they just need to add the tax to the customer's bill. However, it has the potential to make eCommerce operations much more convoluted. For instance, what if the customer's billing address is in one state while the shipping address is in another? How do international eCommerce merchants doing business in the United States tally sales tax? When it comes to making forecasts and sales projections, how can merchants account for tax when their sales could come from anywhere?

Dealing with MFA
It's quite possible that the MFA will never see the light of day, and it's still in the long process of being put into action. However, the Senate did approve the bill earlier this month, and now it's being reviewed by the House of Representatives and President Barack Obama. At least in the case of President Obama, the bill has also seen a lot of support in the past.

So if the bill ends up being passed, how can Internet merchants respond? Without a doubt, price management and sales forecasting will become an important issue. Retailers may want to consider adjusting prices to ensure online shopping remains lucrative and better data analysis will allow merchants to account for taxes as they plan their operations.

States enforcing the MFA will be required to offer free tax collection software, so retailers also need to consider how these platforms will integrate with their eCommerce software. Other solutions A highly flexible and customizable eCommerce management system, such as SalesWarp, will be critical to adapting to new legislation by allowing merchants to quickly and seamlessly syncing this new tax software with other retail solutions.

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