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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 January 1, 2017, California’s state sales and use tax rate will decrease 0.25% from 7.5% to 7.25%. 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)
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)
On July 14, 2016, Rep. Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016. Taking the opposite approach of the Marketplace Fairness Act and Remote Transactions Parity Act, this proposed bill would limit the ability of states to require remote sellers to collect use tax. If enacted, the Act would codify the physical presence requirement established by the US Supreme Court in Quill Corp v. North Dakota. The bill would define physical presence and create a de minimis threshold. If enacted, the bill would preempt click-through nexus, affiliate nexus, reporting requirements and marketplace nexus legislation. The bill would be effective as of January 1, 2017. The bill defines “seller” and provides that states and localities may not:
- Obligate a person to collect a sales, use or similar tax;
- Obligate a person to report sales;
- Assess a tax on a person; or
- Treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.
Persons would be considered to have a physical presence only if during the calendar year the person:
- Owns or leases real or tangible personal property in the state;
- Has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or
- Maintains an office in-state with three or more employees for any purpose.
Physical presence would not include:
- Click-through referral agreements with in-state persons who receive commissions for referring customers to the seller;
- Presence for less than 15 days in a taxable year;
- Product delivery provided by a common carrier; or
- Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.
The bill defines sellerto exclude marketplace providers; referrers; third-party delivery services in which the seller does not have an ownership interest; and credit card issuers, transaction or billing processors or financial intermediaries.Marketplace Providers are defined as any person other than the seller who facilitates a sale which includes listing or advertising the items or services for sale and either directly or indirectly collects gross receipts from the customer and transmits the amounts to the marketplace seller. (No Regulation Without Representation Act of 2016 (H.R. 5893))