The Small Business Tax Fairness and Compliance Simplification Act
Discover how federal legislation establishes a uniform framework for remote sales tax, simplifying compliance and clarifying responsibilities for small businesses.
The Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. changed sales tax for online and remote businesses. The ruling overturned the “physical presence” standard, which limited states to taxing only businesses with a physical tie to their jurisdiction. The Court affirmed “economic nexus,” permitting states to require out-of-state businesses to collect sales tax based on their economic activity in that state.
This decision did not create a single, national system, instead allowing individual states to create their own economic nexus laws. As a result, businesses now face a complex patchwork of different rules, thresholds, and requirements. While federal bills have been proposed to simplify this system, Congress has not enacted a uniform national framework.
Understanding Economic Nexus and State Thresholds
The lack of uniformity creates a compliance challenge for small businesses. Many states set their thresholds at $100,000 in annual sales or 200 separate transactions. Businesses must track sales activity in every state to determine where they have an obligation to collect and remit sales tax.
Once a business crosses a state’s threshold, it must register with that state’s tax authority, calculate the correct sales tax for each transaction, and file regular tax returns. This obligation is prospective, applying to sales made after the threshold has been met.
The Role of Marketplace Facilitators
To simplify tax collection for sales on major e-commerce platforms, most states have enacted “marketplace facilitator” laws. A marketplace facilitator is a company, such as Amazon, Etsy, or eBay, that owns or operates an online platform and processes payments for third-party sellers.
Under these state laws, the legal obligation to calculate, collect, and remit sales tax shifts from the individual small business to the marketplace facilitator. For any sale made through the platform, the marketplace is treated as the seller for tax purposes. This change significantly reduces the administrative burden on small businesses that use these platforms to reach customers. An artisan selling goods exclusively through a qualifying marketplace, for example, is relieved of managing sales tax compliance for those transactions.
It is important to understand that this rule is specific to sales conducted through the facilitator’s platform. If a business also sells products through its own independent website, it remains responsible for complying with the remote seller rules for those direct-to-consumer sales.