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NEWS & TIPS
The Sales Tax Institute reviews numerous sales tax publications to monitor state activity on various topics related to sales and use tax. By checking updates routinely, you may be alerted to an impending tax law change critical to your business.
Browse recent and archived news items by searching relevant categories, states or descriptions at right
The information listed here is high-level summary and background material intended to help you stay current in the dynamic area of sales and use tax. Sources include CCH State Tax Day, Sales and Use Tax Alert, Sales Tax Notes, Vertex, Inc. Reference Manuals, Westlaw, and other miscellaneous state tax newsletters and Department of Revenue notices.
Please note that these summaries omit many details and special rules, and cannot be regarded as legal or tax advice. For more information, be sure to contact your tax advisor.
HOT NEWS UPDATES:
Arizona’s temporary increase in sales tax rates expires on May 31, 2013. The state’s current rate of 6.6% will decrease to 5.6% beginning June 1, 2013. The state’s current rate for transient lodging will decrease from 6.5% to 5.5%. The new tax rates will be reported to the Arizona Department of Revenue beginning with the June 2013 TPT-1 due in July 2013. For quarterly filers, activity from June 1, 2013 through June 30, 2013, will be based on the decreased rate, and activity from April 1, 2013, through May 31, 2013, will be reported on a second row. Annual filers will follow a similar set-up on their December 2013 return. The temporary tax expiration affects the following categories: utilities, communications, transporting, private (rail) car, pipeline, publication, job printing, restaurants and bars, amusement, personal property rental, contracting-prime and owner-builder, retail, transient lodging, and use tax. Categories not affected by this change include commercial lease, severance-metalliferous mining, telecommunications devices, municipal water, jet fuel use tax, and 911 telecommunications. For prime contracting contracts entered into before June 1, 2013, the lower rate applies to receipts received after June 1, 2013 for cash receipts, regardless of when the contract was entered into. For accrual taxpayers, the date the contract is signed is the determining date for the rate. The news release also contains a chart of county and state tax rates that will be effective June 1, 2013. (Transaction Privilege Tax Changes and News, Arizona Department of Revenue, June 1, 2013)
Amazon.com and Overstock.com failed to demonstrate that a provision that requires out-of-state Internet retailers with no physical presence in New York to collect New York sales and use taxes is unconstitutional on its face under the Commerce Clause or the Due Process Clause. The click-through nexus provision created a rebuttable presumption that a retailer solicits business in New York if any in-state entity is compensated for directly or indirectly referring customers to the retailer, whether by an online link or otherwise, and the cumulative gross receipts from these and other New York affiliate referrals exceed $10,000. Amazon and Overstock alleged that the statute is unconstitutional on its face because it violates the Commerce Clause by subjecting online retailers, without a physical presence in the state, to New York sales and use taxes. The court held that although there is some dispute as to the appropriate standard to apply when evaluating a facial challenge under the Commerce Clause, the statute is constitutional on its face under either standard. A state tax that impacts the Commerce Clause will be upheld when the tax: is applied to an activity with a substantial nexus with the taxing state; is fairly apportioned; does not discriminate against interstate commerce; and is fairly related to the services provided by the state. All parties agreed that the only item at issue was whether the statute satisfies the substantial nexus test.Taking precedent into consideration, the court noted that although an in-state physical presence is necessary, it does not need to be substantial, but it must be demonstrably more than the slightest presence. The presence requirement is satisfied if economic activities are performed in-state by the seller’s employees or on its behalf. When the click-through statute was enacted, the legislature attached significance to the physical presence of a resident website owner, recognizing that many websites are geared toward predominantly local audiences, so that the physical presence of the website owner becomes relevant to Commerce Clause analysis. Through these affiliate agreements, a vendor is essentially deemed to have established an in-state sales force. As such, the Court of Appeals ruled that the statute plainly satisfies the substantial nexus requirement. Active, in-state solicitation that produces a significant amount of revenue qualifies as demonstrably more than a slightest presence. If a vendor is paying New York residents to actively solicit business in the state, the vendor should shoulder the appropriate tax burden.The court also observed that vendors are not required to pay these taxes out-of-pocket, but are instead collecting taxes that are unquestionably due, which are difficult to collect from individual purchasers, and for which there is no risk of multiple taxation.
Physical presence is not required in order to satisfy due process. Due process analysis focuses on whether a party has purposefully directed its activities toward the state and whether it is reasonable, based on the extent of a party’s contacts with that state and the benefits derived from that access, to require it to collect taxes for that state. An entity engaged in continuous and widespread solicitation of business within a state has fair warning that its activity may subject it to the jurisdiction of the state, even in the absence of physical presence. The court held that a "brigade" of affiliated websites compensated by commission constitutes such solicitation.
Amazon and Overstock claimed that the statute violates the Due Process Clause by creating an irrational and non-rebuttable presumption of solicitation of business within the state. They argued that there must be a rational connection between the facts proven and the fact presumed, and a fair opportunity for the opposing party to make a defense. The court noted that the New York residents are compensated for referrals resulting in purchases, and at least some of those residents will actively solicit other residents in order to increase their referrals and their compensation. Given the direct correlation between referrals and compensation, the court found it rational to presume that it is likely that residents will seek to increase their referrals by soliciting customers, and that it is not unreasonable to presume that affiliated website owners in New York State will reach out to their in-state friends, relatives, and other local individuals in order to accomplish this purpose. Amazon and Overstock also argued that the presumption is not rebuttable because it will be extremely difficult, if not impossible, to prove that none of their New York affiliates is soliciting customers on the retailers’ behalf. However the New York Department of Taxation and Finance has provided a method (contractual prohibition and annual certification) through which the retailers will be deemed to have rebutted the presumption. Although obtaining the necessary information may impose a burden on the retailers, inconvenience does not make the presumption non-rebuttable. The court also noted that the presumption places the burden on the retailers to provide information about the activities of their own affiliates, information that the department would have significant difficulty uncovering on its own.
(Overstock.com, LLC v. New York State Department of Taxation and Finance, Court of Appeals of the State of New York, Nos. 33 and 34, March 28, 2013)
Kansas has enacted legislation containing click-through and affiliate nexus provisions. Effective 90 days after the enactment of the legislation, a retailer is presumed to be doing business in Kansas if the retailer enters into an agreement with a Kansas resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link or a website, telemarketing, an in-person oral presentation, or otherwise, to the retailer. To be presumed to be doing business in Kansas, cumulative gross receipts from sales by the retailer to customers in Kansas who are referred to the retailer by all residents with this type of an agreement with the retailer must be more than $10,000 during the preceding 12 months. This presumption can be rebutted if the retailer submits proof that the Kansas residents with whom the retailer has an agreement did not engage in any activity within the state significantly associated with the retailer’s ability to establish or maintain the retailer’s market in the state during the preceding 12 months. Proof can consist of sworn written statements obtained in good faith from all of the residents with whom the retailer has an agreement stating that they did not engage in any solicitation in the state on behalf of the retailer during the preceding year. For purposes of the legislation, “preceding 12 months" includes the 12 months beginning prior to the effective date of the legislation. Additionally, the date when a retailer and a resident enter into this type of agreement is not relevant.
The legislation also creates a rebuttable presumption that a retailer is doing business in Kansas if an affiliated person of the retailer with a physical presence, or employees or agents in Kansas, has sufficient nexus in Kansas to require the retailer to collect and remit sales and use taxes on taxable retail sales of tangible personal property or services. The affiliate nexus presumption can be rebutted by showing that the activities of the affiliated person are not significantly associated with the retailer’s ability to establish or maintain a market in Kansas for the retailer’s sales. "Affiliated person" is defined as any person that is a member of the same "controlled group of corporations" as the retailer, or any other entity that, regardless of how it is organized, bears the same ownership relationship to the retailer as a corporation that is a member of the same controlled group of corporations.
The presumption that a retailer is doing business in Kansas also applies if any person (other than a common carrier acting in its capacity as such) who has sufficient nexus in Kansas to require the collection and remittance of sales and use taxes: 1) uses trademarks, service marks, or trade names in Kansas that are the same or substantially similar to those used by the retailer; 2) delivers, installs, assembles, or performs maintenance services for the retailer’s customers within Kansas; 3) facilitates the retailer’s delivery of property to customers in Kansas by allowing the retailer’s customers to pick up property sold by the retailer at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Kansas; or 4) conducts any other activities in the state that are significantly associated with the retailer’s ability to establish and maintain a market in the state for the retailer’s sales. These four categories are in addition to any other categories currently in effect under the law.
The Department has provided additional guidance stating that the click-through nexus provisions take effect on October 1, 2013. The affiliate nexus provisions and various amendments to the definition of "retailer doing business in this state" take effect on July 1, 2013. The Department also reminded taxpayers that every retailer doing business in Kansas who makes taxable sales of tangible personal property for use, storage, or consumption in Kansas has a duty to collect Kansas state and local use tax due from customers and to timely report and remit the taxes. (S.B. 83, Laws 2013, effective upon publication in the Kansas Register; Notice 13-05, Kansas Department of Revenue, May 10, 2013)
The federal Marketplace Fairness Act of 2013 was introduced in the House of Representatives and the Senate on February 14, 2013. If passed, the bill would authorize states that meet certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. Under the legislation, a state would be authorized to require a remote seller to collect sales and use taxes only if the remote seller has gross annual receipts in total remote sales in the United States of more than $1 million in the preceding calendar year.
Member states of the Streamlined Sales and Use Tax (SST) Agreement would be authorized to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that member state pursuant to the provisions of the SST Agreement. The SST Agreement would have to include certain minimum simplification requirements. An SST member state could begin to exercise authority under the Act beginning 90 days after the state publishes notice of its intent to exercise such authority, but no earlier than the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Act.
States that are not members of the SST Agreement would be authorized, notwithstanding any other provision of law, to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to the state if the state implements certain minimum simplification requirements. The authority would begin no earlier than the first day of the calendar quarter that is at least six months after the state enacts legislation to exercise the authority granted by the Act.
To enforce collection requirements on remote sellers that do not meet the small seller exception, states that are not members of the SST Agreement would have to implement the minimum simplification requirements listed below. For SST member states to have collection authority, the requirements would have to be included in the SST Agreement.
- A single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the state
- A single audit of a remote seller for all state and local taxing jurisdictions within that state
- A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.
- Each state would have to provide a uniform sales and use tax base among the state and the local taxing jurisdictions within the state.
- Each state would have to source all interstate sales in compliance with the sourcing definition outlined below.
- Each state would have to provide information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the state and a rates and boundary database. States would have to provide free software for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect state and local rate changes. States would also have to provide certification procedures for persons to be approved as certified software providers (CSPs). Such CSPs would have to be capable of calculating and filing sales and use taxes in all the states qualified under the Act.
- Each state would have to relieve remote sellers from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a CSP.
- Each state would have to relieve CSPs from liability to the state or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.
- Each state would have to relieve remote sellers and CSPs from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the state.
- Each state would have to provide remote sellers and CSPs with 90 days’ notice of a rate change by the state or any locality in the state and update the taxability and exemption information and rate and boundary databases, and would have to relieve any remote seller or CSP from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.
For non-SST member states, the location to which a remote sale is sourced would be the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. SST member states would be required to comply with the sourcing provisions of the SST Agreement.
On March 22, 2013, the U.S. Senate voted 75-to-24 in favor of the concept of the Marketplace Fairness Act. The actual Marketplace Fairness Act was introduced in both chambers in February, but last week Senator Enzi, the sponsor of the Senate bill, offered an amendment to the 2014 Budget Resolution that would include insertion of the language of Marketplace Fairness in the budget. It was a largely symbolic tactic since the Budget Resolution itself will not become law, but by approving the amendment, the Senate has shown that there is broad, bipartisan support for the notion of requiring remote sellers to collect sales tax.
On May 6, 2013, the U.S. Senate passed the Marketplace Fairness Act with a 69-27 vote.
We are continuing to track the activities of these bills. We are also involved in planning efforts involving states and businesses regarding the potential implementation consequences of passage. Watch for updates in the Sales Tax Compass as well as through our Twitter account and LinkedIn updates.
The text of the bill passed by the Senate can be viewed here. (H.R. 684 and S. 336, as introduced in Congress on February 14, 2013; S.743, as passed by the U.S. Senate on May 6, 2013)
s Cook County has passed an ordinance that imposes a 1.25% use tax on non-titled personal property purchased outside of Cook County and subsequently used in Cook County. This tax is in addition to the Illinois use tax and the City of Chicago Non-Titled Personal Property Use Tax. The Cook County use tax is effective April 1, 2013, and the rate is imposed on the property’s value when first subject to use in Cook County. The tax is imposed on the purchaser or user and is payable when the property is first subject to use in the county. The seller should not collect the tax – it is strictly a purchaser self-assessed use tax. If the purchaser resides in Cook County or the property was delivered to a location in the county, the property will be considered for use in the county and first used on the delivery date. The ordinance also imposes a registration obligation on every person who acquires non-titled personal property subject to the use tax. The person must register with the Cook County Department of Revenue. Click here or here to access the Cook County registration web page. Individuals with a tax liability under the ordinance will receive an annual tax credit for the first $3,500 of non-titled personal property purchased outside Cook County. The credit will be applied against the person’s tax liability arising under the ordinance each year and cannot be used against tax liability arising in another tax year.
The following items are exempt from the tax: items of non-titled personal property exempt from tax under the Illinois Use Tax Act; food for human consumption that is to be consumed off the premises where it is sold, other than alcoholic beverages, soft drinks, and food which has been prepared for immediate consumption within the county; and prescription and non-prescription medicines, drugs, medical appliances used by persons who are public aid recipients in nursing homes, as well as insulin, urine testing materials, syringes, and needles used by natural persons who are diabetics for personal use.
The following uses are exempt from the tax: the use in the county of non-titled personal property acquired outside the county by a nonresident natural person if the property is brought into the county by the person for his or her own use while temporarily in the county or while passing through the county; the use of non-titled personal property by (1) an interstate carrier for hire as rolling stock moving in interstate commerce; or (2) the lessor under a lease of at least one year, executed or in effect at the time of purchase of the property, to an interstate carrier for hire as rolling stock moving in interstate commerce, but only so long as the property is used by the interstate carrier for hire; the use by an owner, lessor, or shipper of non-titled personal property that is utilized by interstate carriers for hire as rolling stock moving in interstate commerce as so used by interstate carriers for hire; the temporary storage in the county of non-titled personal property that is acquired outside the county and that, after being brought into the county and stored temporarily in the county is (1) used solely outside the county; (2) physically attached to, or incorporated into, other tangible personal property that is used solely outside the county; or (3) altered by converting, fabricating, manufacturing, printing, processing, or shaping and, as altered, is used solely outside the county; the temporary storage in the county of building materials and fixtures by a combination retailer and construction contractor registered with the state, but only if the contractor thereafter incorporates the building materials and fixtures into real estate located outside the county; the purchase or use of non-titled personal property by a common carrier by rail that receives possession of the property in the county and that transports the property, or shares with another common carrier in the transportation of the property, out of the county on a standard uniform bill of lading showing the seller of the property as the shipper or consignor of the property to a destination outside the county, for use outside the county; the personal use in the county of non-titled personal property acquired outside the county by a natural person who, at the time of acquisition, was not a resident of the county, and who used the property outside the county for at least three months prior to bringing the property into the county; and the use in the county of non-titled personal property by a person who uses said property in the course of business and who relocates to the county, or opens an office, plant, or other facility in the county, if the property has been used at least three months outside the county by the person before being moved into the county.
Additionally the ordinance provides rules for the filing of returns, tax payments and remittances, as well as the required books and records, and violations and penalties. The County will be notifying taxpayers they believe are subject to the tax and these taxpayers must register within the notification period. Although there are significant issues with the imposition and administration of the tax that are not yet resolved, it is advisable for taxpayers to proceed with registration to minimize their risk. (Cook County Ordinance 12-O-63, adopted November 9, 2012)