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Lead Story

Is hardware, not software, the true security solution?


Industry Update

NFC-Bluetooth contactless payment combo proposed

Heartland to comply with CFPB's request

TeleCheck settles with FTC


Rise and shine for mobile payments


Implications and rationale for new best practices

Ken Musante
Eureka Payments LLC


Street SmartsSM:
Best practice takes practice

Dale S. Laszig
DSL Direct LLC

Hiring employees � Part 1

Vicki M. Daughdrill
Small Business Resources LLC

The MFA: What payment pros must know in 2014

Adam Atlas
Attorney at Law

Company Profile

JetPay Corp.

Process Pink Payments LLC

New Products

ISO sales intelligence magnified


Easy ways to increase efficiency


Why mobile payment systems fail

Ralph Dangelmaier


Resource Guide


A Bigger Thing

The Green Sheet Online Edition

February 10, 2014  •  Issue 14:02:01

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Legal ease:
The MFA: What payment pros must know in 2014

By Adam Atlas

It is highly likely online merchants will have to collect state and local sales taxes starting this year. The purpose of this article is to give ISOs and merchant level salespeople (MLSs) critical information in advance of this paradigm change in payment processing.

What is the MFA?

The Marketplace Fairness Act (MFA) is a yet to be adopted federal law that would effectively require online merchants to collect the sales tax applicable on their sales. In most cases, the amount to be collected is the sales tax applicable to the product where the buyer is located. For example, if your merchant sends fruit baskets from Florida to a buyer in Topeka, Kan., the sales tax due on the sale would include the Kansas state sales tax, Shawnee County sales tax and the Topeka sales tax on fruit baskets.

The MFA overwhelmingly passed the U.S. Senate during 2013 and is now pending in the House of Representatives. It may surprise you to learn that the MFA enjoys considerable bipartisan support. This is because it is not a new tax bill; it would result in the collection of taxes already owed.

Republicans have supported initiatives to collect existing taxes – such as the MFA. Needless to say, main street retailers are largely in support of the MFA because, since they must collect sales tax, they often have to charge 6 or 7 percent more than their online competitors for the same product.

How would it work?

There are over 13,000 tax jurisdictions in the United States. These are all subject to change once in a while – at the state, county and city levels. There are also temporal changes in state sales taxes – such as "Tax Free Tuesday." In any given online shopping cart, the taxes will be different for each product. Diapers and cigarettes are not taxed at the same rate.

Once upon a time, keeping track of all 13,000 tax rates and how they apply to myriad individual products was impossible for an ordinary retailer. So, in 1967, the Supreme Court didn't see the need to enforce tax collection that was virtually impossible.

However, now it's 2014, and looking up a tax rate for a product and location in real time couldn't be easier. TaxCloud, an MFA-related startup, does it for free at It is one of a handful of Certified Service Providers (CSPs) designed to help processors and merchants comply with the MFA.

When the MFA becomes law, merchants will be scrambling to sign up and integrate with CSPs like TaxCloud. The CSP will:

Why should ISOs care now?

ISOs and MLSs should be relieved that the MFA did not become law in 2013 because that is likely going to give them a few more months to prepare for the deluge of merchant requests for help with compliance. Payment professionals should be on top of this issue now because those who do will be seen by their merchants as ahead of the issue and not playing catch-up when the MFA becomes law – perhaps this coming spring or summer.

As soon as the MFA becomes law, processors will be instantly separated into two camps: those who can help merchants comply and those who can't. ISOs and MLSs can act now to demand of their processors an MFA integration plan. This is primarily a customer service issue for the acquiring sphere. And like so many service issues, it will ultimately become the basis for sales and merchant migration from one platform to another.

Naturally, some merchants will be reluctant to collect tax that is not yet expressly mandated for collection. Those are not your best merchants. Your best merchants will want to integrate with a CSP long before the MFA becomes law so that there will be no glitches when the law is adopted.

I believe ISOs and MLSs that partner with MFA-compliant processors will lead the pack in 2014. As you know, every piece of industry compliance or regulation, like the Payment Card Industry (PCI) Data Security Standard (DSS), tax identification number (TIN) matching, etc., leads to a flurry of marketing efforts to move merchants from one provider to another.

The MFA will be bigger than PCI or TIN matching combined, because the penalty for noncompliance is possible jail time for the merchant. Honest processors and ISOs will be sure to be engaged with a competent CSP and lead their merchants into compliance now rather than play catch-up after the fact.

What should ISOs, MLSs do now?

Ask your processor for written confirmation of its MFA compliance plan. The confirmation should come with marketing material you can share with merchants and use as a promotional tool. Processors that have no plan should be encouraged to make one. If your processor has no plan and does not appear to be putting one together, and it would not breach your ISO agreement, consider looking for another processor that has a plan for those merchants that will inevitably want to be out in front of this issue.

What if I do nothing?

If you do nothing, you are going to face questions from all your online merchants that you might not be able to answer. As media coverage of the MFA heats up close to its adoption, perhaps a few months from now, merchants will be calling their ISO sales reps to prepare for compliance. Other ISOs and MLSs will also be calling your merchants to offer their services, including full online tax compliance integration.

The sky is not falling. That said, I believe the MFA will make PCI look like a walk in the park. So prepare well in advance.

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at or call him at 514-842-0886.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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