Companies should begin bracing for the likelihood that they will soon be required to begin collecting and remitting sales and use tax on Internet transactions.

The Senate voted by a 70-percent margin for the Marketplace Fairness Act of 2013, which would allow states to require companies with annual remote sales of more than $1 million nationally to collect sales and use taxes and hand them over to state tax authorities. The measure now goes to the House of Representatives, where some expect resistance and others expect it to win similar support. If enacted, the law would give states not only new authority to collect tax even when they do not have a physical presence in the jurisdiction where they make a sale, but also some responsibility for simplifying their tax systems and providing companies with software that would perform calculations on transactions and facilitate their filing of sales and use tax returns.

The law would apply to any type of remote selling, such as Internet or catalog sales, says Harley Duncan, managing director and a leader in state and local tax for KPMG. That means companies that sell through those methods, whether they sell to consumers or other businesses, would be required to collect and remit sales and use tax for approximately 9,600 state and local taxing authorities throughout the United States, he says. Mercifully, the bill would not require companies to remit taxes directly to individual local authorities. Instead, states would be responsible for collecting on behalf of their various localities within their borders and disbursing the funds accordingly, says Duncan.

It's early to know exactly how states would meet the responsibilities they would be given under the measure, but it's not too early for companies that would be affected by the measure to start considering the implications, says Duncan. “Based on the activity that's occurred in support of this, companies that are going to be significantly affected would be well advised to begin to figure out what it would take to comply,” he says. While there have been other pushes in the past to tax remote sales, “there has been more activity on this than at any time in the last dozen years,” he says.

Duncan says the first step for companies that might be affected is to determine in what states the company does business that might soon be taxable, so the company can take the necessary steps to register with those tax authorities. Then companies need to explore those states' tax rules to determine what sales are taxable and what transactions might be exempt from tax. For example, some but not all states tax sales of clothing, he says, and states have different rules regarding taxing transactions involving non-profit organizations. Companies will also need to consider how they will establish processes and documentation for assuring they collect and remit the appropriate tax to the correct authorities, he says.

State authorities have been working for more than a decade on a system of streamlining sales tax to make it easier for companies to comply with sales tax requirements in a multitude of jurisdictions. So far, about half of the states have signed on to the system, but it doesn't include the largest states, such as New York, California, Texas, Florida, or Illinois, says Duncan.