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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:
On December 16, 2014, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act, 2015, for sales and use tax purposes. The Act includes a provision that extends the Internet Tax Freedom Act (ITFA) until October 1, 2015 with all provisions unchanged.
On January 9, 2015, the House of Representative introduced a bill (un-numbered) that would permanently extend the ITFA, banning states and local jurisdictions from imposing any new tax on internet access. The proposed bill removes the current effective dates of November 1, 2003 through October 1, 2015 and changes the effective date to be effective for new taxes imposed after the date of the enactment. It is not clear if states that have been grandfathered under the existing provision could retain their current tax on internet access but it appears that may be the case. No formal legislation has been introduced that would incorporate the Marketplace Fairness Act into this bill. The bill is sponsored by House Judiciary Committee Chairman Bob Goodlatte, among others.
For our previous news item on this topic, see Internet Tax Freedom Act is Extended Through December 11, 2014.
(Consolidated and Further Continuing Appropriations Act, 2015; H.R. 235)
Michigan Governor Rick Snyder has signed legislation that enacts affiliate and click-through nexus provisionseffective October 1, 2015. Per the affiliate nexus legislation, a seller is presumed to be engaged in business in Michigan if it or any other person, including an affiliated person, other than a common carrier, engages in the following activities:
- sells a similar line of products as the seller under the same or a similar business name;
- uses its employees, agents, independent contractors, or representatives to promote sales by the seller in Michigan;
- maintains an office, distribution facility, warehouse, storage place, or similar place of business in Michigan to facilitate the delivery of tangible personal property sold by the seller to customers in the state;
- uses, with the seller’s knowledge or consent, trademarks, service marks, or trade names in the state that are the same or substantially similar to those used by the seller;
- delivers, installs, assembles, or performs maintenance or repair services for the seller’s customers in Michigan;
- facilitates the seller’s delivery of property to customers by allowing the seller’s customers in the state to pick up tangible personal property sold by the seller at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in the state;
- shares management, business systems, business practices, or employees with the seller, or, in the case of an affiliated person, engages in intercompany transactions related to the activities occurring with the seller to establish or maintain the seller’s market in Michigan; or
- conducts any other activities in the state that are significantly associated with the seller’s ability to establish and maintain a market in the state.
The affiliate nexus presumption may be rebutted by demonstrating that activities of the other person or affiliated person were not significantly associated with the seller’s ability to establish or maintain a market in Michigan. The above provisions are very broad and will likely establish nexus for many remote sellers as it does not just apply to commonly owned affiliates but any individual or entity performing these activities on behalf of the seller other than a common carrier.
The click-through provision states that a seller is presumed to be engaged in business in Michigan if the seller enters into an agreement with one or more residents under which the resident, for a commission or other consideration, directly or indirectly, refers potential customers, by a link on an Internet website, in-person oral presentation, or otherwise, to the seller. The broad referral activities cover both online and offline referrals. For the click-through provision to apply, cumulative gross receipts from sales to Michigan customers who are referred to the seller must be greater than $10,000 during the immediately preceding 12 months. Additionally, total cumulative gross receipts from sales to Michigan customers must be greater than $50,000 during the immediately preceding 12 months. This will protect some smaller sellers that don’t have significant sales into Michigan.
The click-through presumption may be rebutted by demonstrating that the persons with whom the seller had agreements did not engage in activities that were significantly associated with the seller’s ability to establish or maintain a market in Michigan. The presumption would be considered rebutted by evidence of the following:
- written agreements prohibiting all residents with an agreement with the seller from engaging in solicitation in Michigan on behalf of the seller, and
- written statements from all residents with an agreement with the seller stating that the residents did not engage in any solicitation activities on behalf of the seller during the immediately preceding 12 months.
This appears to be an annual requirement and could be burdensome on the seller. However, the New York cases that found the New York provisions constitutional discussed the burden and indicated it would not create an unconstitutional law to have a reporting requirement to rebut the provision.
An agreement where a seller purchases advertisements from a person in Michigan to be delivered via television, radio, print, the Internet, or any other medium is not an agreement that would lead to a presumption of nexus unless the revenue paid to the persons is commissions that are based on completed sales. Therefore, traditional advertising including pay per click will not establish nexus. (Act 553 (S.B. 658) and Act 554 (S.B. 659), Laws 2015, effective October 1, 2015)
Louisiana Gov. Bobby Jindal has signed legislation that amends the Tax Delinquency Amnesty Act of 2013, which requires the Louisiana Department of Revenue (LDR) to develop and implement a tax amnesty program for taxes administered by the LDR. Dates for the 2014 and 2015 Amnesty have not yet been announced. Louisiana had an amnesty program in 2013 from September 23, 2013 to November 22, 2013. The new legislation expands the scope of the amnesty program to include:
- taxes for taxable periods that began before 2014 (previously, before 2013);
- taxes for which the LDR and the taxpayer have entered into an agreement to toll the statute of limitations until the end of 2014 (previously, until the end of 2013);
- for the 2014 amnesty program, taxes due prior to 2014 for which the LDR has issued a proposed assessment, notice of assessment, bill, notice, or demand for payment not later than May 31, 2014; and
- for the 2015 amnesty program, taxes due prior to 2015 for which the LDR has issued a proposed assessment, notice of assessment, bill, notice, or demand for payment not later than May 31, 2015.
The new legislation permits 100% of penalties and 50% of interest to be waived during the 2014 amnesty period (previously, 15% of penalties and no interest). For the 2015 amnesty period, 33% of penalties and 17% of interest may be waived (previously, 10% of penalties and no interest). A taxpayer will be subject to double penalties if there is a final judgment rendered against the taxpayer by a court or if the taxpayer has exhausted all rights to protest taxes owed to the state 90 days prior to either the 2014 or the 2015 amnesty period, and the taxpayer then fails to submit an amnesty application before the end of the applicable amnesty period 90 days prior to which the final judgment was rendered or 90 days prior to which the taxpayer’s rights to protest taxes have been exhausted. A taxpayer who disputes a portion of the delinquent tax assessed by the LDR may now be eligible to apply for amnesty if the taxpayer remits a complete one-time payment of the portion of the tax that is not in dispute, plus applicable interest and penalties, to the LDR prior to the end of the applicable amnesty period. This payment is referred to as a "compromise amount." The LDR will then have 30 days to determine if the taxpayer should be granted amnesty based on the compromise amount paid. If the LDR approves the compromise amount paid by the taxpayer, the taxpayer will be granted amnesty. If the LDR rejects the compromise amount, amnesty will not be granted and the taxpayer will be responsible for the full amount of the delinquent tax, penalties, interest, and fees prior to the application for amnesty. The legislation authorizes the use of six-month installment payment agreements. Taxpayers who apply for amnesty by opting to pay in installments remain eligible to participate in the amnesty program only by making complete and timely payment of the entire amount due under the installment agreement. Taxpayers involved in field audits or litigation are not eligible for installment agreements under the amnesty program. All installment agreements must require the taxpayer to provide a down payment of no less than 20% of the total amount of delinquent tax, penalty, interest, and fees owed. Taxpayers who cannot enter into an agreement to make automated electronic payments are not eligible for an installment agreement. Additionally, under the new legislation, the LDR is prohibited from accepting tax credits as payment of any tax, interest, penalty, or fee paid as a result of participation in the amnesty program. The legislation also states that, after 2015, no new LDR amnesty programs are allowed before January 1, 2025. (Act 822 (H.B. 663) Laws 2014, effective August 1, 2014)
UPDATE: Louisiana has announced the dates for the 2014 tax amnesty program. The 2014 program will run from October 15, 2014 to November 14, 2014.
The U.S. District Court of Appeals for the 10th Circuit has ruled that a lower federal court overstepped its jurisdiction when it declared unconstitutional and issued a permanent injunction against enforcement of a statute and regulations that impose notice and reporting requirements pertaining to use tax on out-of-state sellers. To view our previous news item on the injunction, click here. The lower court’s decision to impose the permanent injunction was based upon the court’s reasoning that the law placed an undue burden on interstate commerce.The U.S. Court of Appeals remanded the case to the federal district court to dismiss the plaintiff’s claims and to lift the permanent injunction. The court cited the Tax Injunction Act, which states that federal courts should not enjoin, suspend or restrain any state tax assessments or collections if the disputed matter can be resolved by lower courts. The court noted that although its decision was based on the Tax Injunction Act, the doctrine of comity also favored the state. The doctrine of comity is intended to "restrain federal courts from entertaining claims for relief that risk disrupting state tax administration." We will monitor the DMA response and Colorado’s enforcement provisions. At this point, it appears the law is valid and affected sellers should evaluate their requirements to provide the appropriate notice on each invoice due to the significant potential penalties.
UPDATE: On December 13, 2013, a federal district court judge issued an order dissolving the permanent injunction entered against the Colorado Department of Revenue regarding notice and reporting requirements pertaining to use tax on out-of-state sellers. The Colorado Department of Revenue has issued a notice stating that it will not enforce any penalties for failure to comply during the period the injunction was in place. The Department also will not assess penalties for a retailer’s failure to comply with the January 31, 2014 deadline to provide annual purchase summaries to their customers or the March 1, 2014 deadline to provide the annual report to the Department for their 2013 purchases. (Direct Marketing Association v. Brohl, U.S. Court of Appeals, Tenth Circuit, Dkt. 12-1175, August 20, 2013, The Direct Marketing Association v. Huber, U.S. District Court for the District of Colorado, Dkt. No. 10-cv-01546-REB-DBS, December 10, 2013)
UPDATE: A Denver district court judge has granted Direct Marketing Association's motion for a preliminary injunction against Colorado imposing notice and reporting requirements on remote sellers. The court found that the law discriminated against remote sellers who were required to collect sales tax or required to notify customers of use tax obligations. According to the Colorado Department of Revenue, retailers are not required to comply with the remote vendor reporting requirements at this time. However, the court’s decision does not affect a Colorado consumer’s liability for tax on any purchase on which sales tax was not collected. Customers are still required to file a Consumer Use Tax Return and pay the tax due.(Direct Marketing Association v. Department of Revenue, Denver District Court, No. 13CV34855, February 18, 2014, and Release - Internet Sales/Non-Collecting Retailers, Colorado Department of Revenue, February 19, 2014)
UPDATE: The U.S. Supreme Court has been asked to review the decision by the U.S. District Court of Appeals for the 10th Circuit which held that the federal Tax Injunction Act barred the exercise of federal court jurisdiction over the lawsuit challenging the constitutionality of the Colorado law. (Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt. 13-1032, petition for certiorari filed February 25, 2014)
UPDATE: The U.S. Supreme Court has agreed to review the decision of the U.S. District Court of Appeals for the 10th Circuit. (Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt. 13-1032, petition for certiorari granted July 1, 2014)
UPDATE: Oral arguments are scheduled to take place before the U.S. Supreme Court on December 8, 2014.
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.
UPDATE: On September 18, 2013, Rep. Bob Goodlatte, the chairman of the House Judiciary Committee released a set of seven principles that he believes any internet sales tax bill should meet. The seven principles outlined by Goodlatte are tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights, and privacy rights. For more details on the principles, click here to see the House Judiciary Committee’s press release.
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)