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.

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