United States: GT Perspective On The Marketplace Fairness Act

The Marketplace Fairness Act (MFA), currently under consideration in Congress, would authorize states to require remote sellers to collect and remit sales and use taxes. This comprehensive legislation is intended to address the inherent challenges of developing a system under which states would have the power to require out-of-state businesses to act as tax collection and remittance agents. Grant Thornton believes the version of the MFA passed by the U.S. Senate should be revised prior to enactment to reduce compliance burdens on businesses and encourage more sales and use tax uniformity from state to state.

It is important to note that Grant Thornton does not currently take a position on the MFA. However, we do actively encourage and support efforts to simplify and streamline tax compliance and administration. We recognize that brick-and-mortar businesses are actively pursuing the adoption of the MFA as a means to preserve fair competition with online competitors, while many e-commerce businesses are adamantly opposed to Congressional intervention, in part due to increased compliance burdens imposed by the MFA. The issues of whether the MFA constitutes the imposition of a new tax, along with potential Constitutional concerns, have also been raised by those for and against the MFA. It is obvious that the MFA splits various segments of the business community.

Although Grant Thornton does not currently take a position on whether the MFA should be enacted at all, we believe that if it is enacted, it should be revised to address some of the concerns raised by its opponents, by:

  • Substantially increasing the small business exemption;
  • Allowing remote sellers filing flexibility;
  • Providing remote sellers stronger hold harmless provisions and amnesty for pre- MFA periods;
  • Providing remote sellers a temporary special vendor compensation provision in addition to vendor compensation paid to all sellers required to collect and remit to the state; and
  • Mandating more simplification in sales and use tax laws as a means to benefit all businesses subject to collection and remittance obligations.


Twenty years ago, the U.S. Supreme Court determined that states could not impose sales and use tax obligations on remote sellers with no in-state physical presence. However, the Court also held that Congress had the ultimate power to subject remote sellers to those tax obligations based on its authority to regulate interstate commerce under the Commerce Clause of the U.S. Constitution.

The MFA is a manifestation of that power authorized to Congress. The MFA sets forth procedures by which member states of the Streamlined Sales and Use Tax Agreement (SSUTA),1 as well as non-member states, may require remote sellers to collect and remit sales tax. As currently structured, the MFA would essentially allow member states to secure collection and remittance authorization on remote vendors. In order for non-member states to secure collection and remittance authorization on remote vendors, the bill would require non-member states to adopt and implement several minimum simplification requirements, which are similar, but not identical to provisions contained with the SSUTA.

The MFA asserts that a state has the right to require a seller that has no physical presence in that state, and by extension, no relationship with that state but for its customers, to act as a sales tax collector for the state. For the MFA or a similar type of effort to work, states must take additional steps to support the collection process. Ensuring a simple and fair collection and remittance process is very important.

While the MFA may appear to provide some level of uniformity and certainty in the area of multistate sales and use taxation, Grant Thornton believes that the MFA needs to significantly simplify the tax reporting and determination process for remote sellers, and by extension, for all sellers required to collect and remit sales and use taxes. This can best be achieved by making it easier for remote sellers to comply with the new collection and remittance requirements. The following revisions to the MFA would help achieve that aim.

Increasing the Small Business Exemption

The MFA is intended to meet many of the challenges that states face by applying a uniform collection and remittance requirement to all remote sellers with over $1 million in annual nationwide remote sales. The exemption for "small sellers" that annually earn $1 million or less in gross receipts from nationwide remote sales is intended to alleviate the concern that the MFA is overly burdensome on small businesses.

Multistate sales and use tax collection, even under the SSUTA and the MFA, is complex and costly, will consume the limited resources of small business, and is likely to have a negative impact on those businesses' long-term viability. We recommend increasing the small business exemption in the MFA from $1 million to a substantially larger amount, as a means to exempt small businesses that may not have the resources to comply with disparate collection and remittance processes in numerous states. In addition to the increase in the overall small business exemption amount, we also recommend that in order for a state to have the power to require collection and remittance authority over a remote seller, a state-specific dollar threshold should be met as well.

Allowing Remote Sellers Filing Flexibility

Given the outdated nature of some states' filing systems (particularly the states that are not SSUTA members), the MFA should focus more on improving state sales and use tax collection and remittance procedures across the board. Until procedures improve, remote sellers should be allowed flexibility to file and make sales and use tax payments by electronic or manual means. In addition, the MFA should require non-SSUTA states, as a condition of participating under the MFA, to allow remote sellers to use the SSUTA simplified electronic tax form for filing returns (rather than requiring remote sellers to use that state's own sales and use tax return).

Holding Remote Sellers Harmless and Providing Amnesty

While the MFA requires states to provide free software to be used for tax calculation and remittances, such software is unlikely to be the same from state to state, and may not provide remote sellers accurate results. Therefore, a current provision in the MFA holding the remote seller harmless in the case of inadvertent errors in the collection and remittance process (particularly when an error results from relying upon state-provided software) is a good first step. However, more protection is needed.

States should hold a remote seller harmless in all cases where such seller reasonably tries to comply with its collection and remittance obligations, including situations where the remote seller has to determine the taxability of items under complex or unclear tax laws. For example, businesses frequently deal with issues of interpretation in areas such as the taxation of software as a service and digital products. In addition, the MFA should require any participating state to grant amnesty to any remote seller that comes forward to collect and remit sales and use tax once the federal bill is passed. States should not have the ability to use the MFA as a means to audit a remote seller under the assertion that such seller had nexus prior to the passage of the MFA.

Providing Temporary Special Vendor Compensation

Approximately one-half of the states imposing sales and use taxes currently pay vendor compensation to sellers that are subject to collection and remittance requirements. The MFA should require states to: (i) temporarily compensate remote sellers with a special vendor compensation allowance to offset the new costs associated with collecting the taxes on behalf of the states; and (ii) require all states securing collection and remittance authorization on remote vendors pursuant to the MFA that currently do not provide vendor compensation to sellers to provide all sellers with a base level of vendor compensation. A reasonable special vendor compensation allowance as a percentage of sales tax collected for the first two years in which the remote seller is subject to new collection and remittance requirements would fairly compensate the remote seller for the numerous new tasks that it needs to perform. Following the initial two-year period, the special vendor compensation would be phased out, but remote sellers would still receive the same vendor compensation as other sellers. Further, the enactment of the MFA is an ideal opportunity to recognize the significant effort required to participate as a collection and remittance agent for a state by providing all sellers a base level of vendor compensation as a condition of participating under the MFA.

Requiring More Sales and Use Tax Uniformity

The MFA should be doing more to require states to take significant action to make state and local sales and use taxes more uniform throughout the United States, and to create a collection and remittance system that is far less onerous on remote sellers who will be the new participants in this expanded system, as well as other businesses already subject to these requirements.

The SSUTA, to its credit, has tried to create a system by which full membership results in a fair amount of simplification of the sales and use tax code through a set of model rules, including a uniform set of sales tax definitions. Though the current version of the MFA leverages the SSUTA, it does not act strongly enough to make the sales and use tax code more uniform from state to state, and does not require states to become SSUTA members in order to obtain the right to claim jurisdiction over remote sellers.

While a requirement for non-SSUTA states to join SSUTA in its entirety may not be feasible, some level of uniformity in the sales and use tax laws should be required. Without a push for more uniformity, the compliance burden will be unsustainable for remote sellers newly subject to sales and use tax obligations in numerous states. Further, the risk of interpretive errors that may be made by remote sellers will be very high. And of course, these issues are being faced not only by remote sellers, but by all sellers subject to collection and remittance requirements. Therefore, to promote uniformity in this area, the MFA should require adoption by non-SSUTA states of at least some of the more substantive aspects of the SSUTA in order for such states to enforce collection and remittance responsibilities on remote sellers, and encourage continued simplification following enactment of the MFA.


We note that the MFA will place a significant burden on affected businesses, in exchange for the benefits that will be received by the states through the collection and compliance efforts of remote sellers. The enactment of the MFA would dramatically expand the reach of the states in the administration of the sales and use tax. As such, Grant Thornton urges the proponents of the MFA to make the most of this opportunity to create a fair environment for businesses that will be taking on new collection and remittance responsibilities for states in which they do not have physical presence.


1 The SSUTA is a multistate program designed to simplify sales and use tax compliance. The program is intended to address various uniformity, simplification and technology issues in the area of sales and use tax. Currently, 24 states are SSUTA members. The SSUTA full member states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. Ohio and Tennessee are currently SSUTA associate member states.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.