On Monday, the Marketplace Fairness Act (S.743) passed the Senate, garnering 69 yea votes versus 27 nay. In a nutshell, the Act allows states to tax online sales made within their borders, even if the seller physically resides outside the state. An exemption is made for remote sellers with annual U.S. remote sales not exceeding $1 million in the preceding calendar year.

The bill now will head to the House, where “it’s an open question as to what might be expected,” says Harley Duncan, managing director, state and local tax leader with KPMG’s national tax practice. He adds, however, that the bill has captured “more momentum, more progress and a higher level of discussion” than at any time over the past 20 years. As of early May, the House bill (H.R. 684) had 65 co-sponsors.

In addition, 26 governors from both parties, as well as a number of trade and professional associations support the legislation, according to Marketplacefairness.org.

If the legislation passes in roughly the same form in which it currently exists, the businesses that will be impacted need to get ready, Duncan says. “It’s a significant issue that they need to consider, plan for and evaluate how to meet.”

Duncan outlines a number of steps businesses will need to complete, including these:

• Register with the states in which you do business. In many states, this can be done online.

• Determine which of the products or services you sell are taxable.

• Develop or install a system that allows your business to handle transactions that are exempt from sales taxes. In some states, purchases by non-profit organizations don’t incur sales taxes. In order to properly handle these, the business needs to obtain an exemption certificate from the purchaser. It then needs a system for tracking these.

• Identify the tax rates that will apply. These can vary from one city or county to another. While tools are available to automate this process, they need to be integrated within the business’ software systems.

• Begin collecting and remitting the taxes. Again, tools are available to automate these processes, but the tools also need to be integrated with the business’ overall financial systems, Duncan notes.

The challenge is “not inconsequential,” Duncan adds. Moreover, most businesses will want to ensure that the process of calculating and charging taxes on customers’ purchases are as streamlined as possible. Any hiccup and customers might be tempted to abandon their purchases.

As if that weren’t enough of a challenge, the ramp-up period allowed in the bills is modest, to say the least. The 24 states that are part of the Streamlined Sales and Use Tax Agreement (SSUTA) could potentially begin collecting taxes no earlier than the first day of the calendar quarter that’s at least 180 days after enactment of the Act. States that aren’t part of SSUTA would need to implement a number of simplification requirements outlined in the Act. Once that’s done, they could begin exercising their taxing authority on the first day of a calendar quarter that is at least six months later.

Should the legislation move forward, software and other companies likely will develop additional tools to help businesses impacted by the changes. Even so, the work required promises to be significant. “It’s a sea change in state and local sales taxes,” Duncan says.