Selling online into the United States could get a little trickier after the country’s Congress passed the Marketplace Fairness Act yesterday, which closes a loophole allowing online retailers to avoid charging sales tax to customers.
The Marketplace Fairness Act was passed by a bipartisan majority, and will now head to the House of Representatives.
Already, experts are worried. Simon Scalzo, BDO’s national retail head, told SmartCompany similar bills have been proposed as many as five times before, but none of them have ever gotten this far.
The passage of the Marketplace Fairness Act would make it far more complex to sell into the United States, as every state has different, complex sales taxes that would need to be added on to the final bill of any online purchase.
In Australia, online goods sold for under $1000 do not pay GST. But there is no minimum purchase for which the American bill is to apply, provided a business turns over $1 million in revenue.
American states say they lose $12 billion in revenues annually from online purchases not including sales tax.
Scalzo said it would make things “significantly” more complex for Australian retailers selling online into America.
“A lot of Australian retailers are keen to move into the United States, as it’s a large market with far lower costs of doing business. This is now a potentially significant hurdle they’ll have to have at the back of their mind.”
Previously, a 1992 Supreme Court decision had found American online businesses did not need to collect sales tax from their online customers, providing they didn’t have a physical presence in the state of the buyer.
The law currently states that customers purchasing things online in America have to inform and pass on sales tax to their respective states, but few do.
Critics of previous bills have argued it is too complex for online retailers to track the sales taxes in each of America’s 50 states. Under the current bill, states would have to provide merchants with software to manage this, and also designate a single office within each state to handle all out-of-state tax collections.
But Scalzo says he’s “absolutely certain it’s not a simple plug-in” that’s being proposed. “There are large costs of compliance for retailers to bear.”
In Australia, online goods cheaper than $1000 do not pay GST as government studies have found it would not be cost-effective to collect it. Local brick-and-mortar retailers such as Harvey Norman has said this unfairly disadvantages them from their online-only competitors.
Scalzo says the US decision “may be a catalyst to start that conversation again” in Australia.