Boston University School of Law

Leveling the International Playing Field with the Marketplace Fairness Act

Richard T. Ainsworth
Boston University School of Law

Boryana Madzharova
University of Erlangen-Nuremberg - Department of Economics

Boston University School of Law Working Paper 13-25
(June 14, 2013)


Quill v. North Dakota unbalanced the American retail market with its preference for out-of-state over in-state sellers.  The preference under Quill is that sellers without physical presence in a state cannot be compelled to collect the sales tax.  If the buyer does not voluntarily remit the complementary use tax, the purchase is effectively tax-free.  As a result, Quill is seen as facilitating tax avoidance and driving business to sellers who have no in-state nexus, notably e-businesses.  Revenue losses are estimated in excess of $10 billion per year. 

The reach of the Quill decision is international.  Preferred sellers can reside just as easily in another country as they can in another State.  The international dimension of the Quill decision means that legislative efforts to correct Quill’s preference for out-of-state sellers, like the Marketplace Fairness Act (MFA), also have international implications.  This paper provides a rough analytical and quantitative measure of the impact of the MFA on the largest block of foreign businesses selling into the US, businesses selling from the EU.*  

Analytically, the MFA offers a compliance regime similar to that advanced by the EU Commission for collecting VAT on difficult cross-border transactions.  This administrative replication allows outcomes to be compared.  Quantitative measures can be extrapolated from trade statistics, and will allow some rough estimate of where the MFA will have its greatest international impact. 

The EU and the US Sates are looking at much the same problem when they endeavor to have remote sellers collect and remit destination-based consumption taxes.  Both systems recognize that simply having a law in place requiring collection is not sufficient.  Both systems have adopted one-stop-shops (OSS) and compliance simplifications to induce or persuade remote sellers to comply. 

The EU’s preference for a government-centric OSS and the US preference for OSSs that involve third-parties and certified software may have very different success profiles.  This is an important assessment that is yet to come, but it suggests that the US may want to borrow a solution from the EU, or the EU may want to borrow a solution from the US States.  Both sides need to be open to the possibility.

* The transatlantic economy is the largest and wealthiest market in the world, accounting for over 54% of world GDP in terms of value and 40% in terms of purchasing power.  See: Daniel S. Hamilton & Joseph P. Quinlan, The Transatlantic Economy 2011 – Annual Survey of Jobs, Trade and Investment between the United States and Europe, Center for Transatlantic Relations, Johns Hopkins University, Paul H. Nitz School of Advanced International Studies.


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Richard T. Ainsworth Contact Information
LL.M. Tax Program
Boston University School of Law
765 Commonwealth Ave
Boston, MA 02215
Phone: (781) 773-1052

Boryana Madzharova
EFI Post-doctoral Fellow
University of Erlangen-Nuremberg - Department of Economic
Lange Gasse 20
Nuernberg, D-90403
Phone: +49 911 5302-9405


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