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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:
The Ohio Supreme Court has issued 3 decisions upholding commercial activity tax (CAT) assessments on out-of-state retailers with no physical presence in Ohio. In each case, the Ohio Board of Tax Appeals found the out-of-state online retailer to have more than $500,000 in gross receipts in Ohio sales over the periods at issue, therefore meeting the bright-line presence test for nexus with Ohio.
The retailers contested the CAT assessments, arguing that they lacked substantial nexus with Ohio. The retailers argued that their nexus in Ohio was not sufficiently substantial because they lacked physical presence in Ohio. On appeal to the Ohio Supreme Court, the Tax Commissioner argued that the Commerce Clause does not impose a physical-presence requirement and accordingly, the $500,000 sales receipts threshold set forth in the Ohio CAT statute satisfies the Commerce Clause requirement for substantial nexus.
The Court agreed with the Tax Commissioner’s argument, stating that its reading of the case law indicated that the physical-presence requirement recognized and preserved by the U.S. Supreme Court for purposes of use tax collection does not extend to business-privilege taxes such as the CAT. The Court determined that Quill v North Dakota’s holding that physical presence is a necessary condition for imposing the tax obligation does not apply to a business-privilege tax like the CAT, as long as the privilege tax is imposed with a quantitative standard that ensures that the taxpayer’s nexus with the state is substantial. The Court felt that the quantitative standard is the $500,000 sales-receipts threshold. The Court concluded that the statutory threshold of $500,000 of sales in-state constitutes a sufficient guarantee of the substantial nexus for purposes of the Commerce Clause. It is expected that these cases will be appealed to the U.S. Supreme Court. Given the Ohio Supreme Court’s finding that the physical presence test determined in Quill does not apply to a business privilege tax, a decision if the cases were to be heard might not resolve the longstanding sales and use tax nexus question. We will continue to monitor these cases and their relevance to sales and use tax collection responsibility. (Crutchfield, Inc. v. Testa, No. 2016-Ohio-7760, Ohio Supreme Court, November 17, 2016; Newegg, Inc. v. Testa, No. 2016-Ohio-7762, Ohio Supreme Court, November 17, 2016; and Mason Companies, Inc. v. Testa, No. 2016-Ohio-7768, Ohio Supreme Court, November 17, 2016)
On January 1, 2017, California’s state sales and use tax rate will decrease 0.25% from 7.5% to 7.25%. Note that this rate includes the statewide county tax of 1.25%, so the true California state sales and use tax rate is decreasing from 6.25% to 6%. The state had implemented a temporary sales tax rate increase of 0.25% from January 1, 2013 through December 31, 2016. The lower rate applies for sales that occur after January 1, 2017. This is deemed to be date of delivery unless the contract stipulates that title transfer occurs at an earlier date. In addition, for fixed rate contracts, the rate reduction applies – even if the contract was entered into prior to the rate change. This rate change also impacts the partial exemption under the manufacturing provisions. For additional information on how the rate decrease affects partial exemptions and other items, visit the California BOE webpage. (Special Notice L-475, California State Board of Equalization, October 2016)
New Jersey has enacted legislation that will reduce the state sales and use tax rate from 7% to 6.875% on January 1, 2017. The state sales and use tax rate will be further reduced to 6.625% on January 1, 2018.In addition, the legislation includes transition rules for contracts that cover periods crossing the tax rate changes. (Ch. 57 (A.B. 12), Laws 2016, effective October 14, 2016, applicable as noted)
Tennessee has enacted new economic nexus regulations that establishes sales tax registration and collection requirements for certain out-of-state sellers. The newly enacted rule provides that out-of-state sellers who engage in the regular or systematic solicitation of consumers in Tennessee through any means and make sales to Tennessee consumers exceeding $500,000 during the previous 12-month period have substantial nexus with Tennessee. Sellers meeting this requirement are required to register with the state by March 1, 2017 and affirmatively acknowledge that they will collect and remit sales and use tax to the state beginning July 1, 2017. Unless a later date is established by the department, affected sellers must report and remit tax on sales of tangible personal property and other taxable items delivered to Tennessee consumers, beginning July 1, 2017. Sellers who meet the $500,000 threshold after March 1, 2017 are required to register with the department and begin to collect and remit Tennessee sales and use tax by the first day of the third calendar month following the month in which the dealer met the threshold. In no case will affected sellers be required to collect and remit sales and use taxes to the department for periods before July 1, 2017. Unless otherwise exempt, persons purchasing tangible personal property or other taxable items from any seller that is registered with the department must pay Tennessee sales and use tax on the purchase. Unless otherwise exempt, persons who import tangible personal property or other taxable items into Tennessee and have not paid sales and use tax to the seller must report and pay use tax directly to the department. Tennessee joins Alabama and South Dakota in establishing economic nexus positions. (Rules 1320-05-01-.63 and 1320-05-01-.129, Tennessee Department of Revenue, effective January 1, 2017)
UPDATE: Tennessee has created a new online sales and use tax registration application for out-of-state sellers with no physical presence in Tennessee. Out-of-state sellers with no physical presence in Tennessee that have made sales exceeding $500,000 to Tennessee consumers during the previous 12-month period are required to register by March 1, 2017. By registering, sellers acknowledge that they will collect and remit sales and use taxes to the Department beginning July 1, 2017. Out-of-state sellers with no physical presence in Tennessee that meet the $500,000 threshold after March 1, 2017 are required to register and begin to collect and remit sales and use taxes beginning the first day of the third month following the month in which the dealer met the threshold, but no earlier than July 1, 2017. Out-of-state sellers that have a physical presence in Tennessee are required to register even if their sales to Tennessee consumers are less than $500,000 during a twelve-month period. These sellers are required to register through the Department’s standard registration page. All three types of out-of-state sellers can register online at the Tennessee Department of Revenue website. (Hot Topics, Tennessee Department of Revenue, January 13, 2017)
The Arizona Department of Revenue has issued a ruling stating that a business that operates an online marketplace and makes online sales on behalf of third-party merchants is a retailer conducting taxable sales. The ruling states that gross receipts of that marketplace business derived from sales of tangible personal property to Arizona purchasers are subject to Arizona transaction privilege tax (TPT), provided that the business already has nexus for Arizona TPT purposes. The ruling states that a taxpayer operating an online market place is a retailer making taxable sales on behalf of a third-party merchant if it does the following:
- provides a primary contact point for customer service,
- processes payments on behalf of the merchant, and
- provides or controls the fulfillment process
This appears to indicate that online marketplace providers that otherwise have nexus in Arizona will be deemed the seller for third party retailers that sell on its platform and that the online marketplace has the responsibility to collect and remit tax on all taxable sales. This is the first state to take this position directly and not through a legislative change. We will continue to monitor this to determine if a challenge is filed to the constitutionality of this position. (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016) (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016)