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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 April 3, 2017, the Massachusetts Department of Revenue issued a directive with economic nexus provisions for out-of-state internet sellers. It adopts an administrative bright line rule, instead of applying sales and use tax collection requirements on a case by case basis. Per the directive, an internet seller with a principal place of business located outside the state is required to register, collect and remit Massachusetts sales or use tax on sales into the state as follows:
- For the period of July 1, 2017 to December 31, 2017, if during the preceding 12 months (July 1, 2016 - June 30, 2017), it had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.
- For each calendar year beginning with 2018, if during the preceding calendar year it had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.
The directive discusses Quill Corp. v. North Dakota and states that internet sellers with significant Massachusetts sales meets the statutory and constitutional standards that apply for purposes of the imposition of the commonwealth’s sales or use tax collection duty. In its discussion of what constitutes substantial physical presence under the Commerce Clause, the Directive distinguishes Large Internet Vendors from mail order vendors. Specifically, it considers software, apps and cookies that are typically used by internet sellers to be tangible personal property owned by the seller as substantial physical presence in the state. In addition, they consider Content Distribution Networks (CDN) providers that may be located in the state of Massachusetts to be performing local activities “on behalf of the vendor that are significantly associated with the vendor’s ability to establish and maintain a market” for its sales. When that activity takes place in Massachusetts it establishes an instate physical presence on behalf of such vendor.
Large Internet vendors may also utilize other persons as instate representatives that result in the creation of an instate physical presence. For example, large Internet vendors commonly sell goods through “online marketplaces.” These online marketplaces, which offer a range of potential services through employees or other contract personnel, benefit the client/vendor by, among other things, enhancing its name recognition and creating consumer confidence with respect to its products. These arrangements may vary in form. Many of these agreements allow the Internet vendor to post goods for sale on a website operated by the online marketplace, with orders and payment then processed through that website (with subsequent order fulfillment completed by the individual Internet vendor). Other agreements may provide for increased services by the employees or other personnel of the online marketplace, which may include order fulfillment, return processing, access to the online marketplace’s customer service team, and the preparation of sales reports or other analytics. In either instance, although the website maintained by the online marketplace on which the vendor’s products are sold is “virtual,” some of the various services provided by the online marketplace in connection with the sale of the vendor’s products will be physical in nature. Because these latter, physical services operate to establish and maintain the Internet vendor’s market, these services, when performed in the state, will result in an Instate physical presence on the part of such vendor.
Also, large Internet vendors may utilize delivery services that exceed the type of delivery services that were evaluated by Quill. Quill held that a state could not impose a sales or use tax collection duty on vendors that limit their contacts with the state to the contacts of mail and common carrier. In contrast, large Internet vendors may utilize delivery services that provide not merely product delivery, but additional services that may include logistics, order fulfillment, storage, return processing and order management. In general, these additional services operate to enhance the vendor’s sales. Therefore, these services, when performed in the state, will result in an instate physical presence on the part of such vendor.
This is an expansive definition of substantial physical presence defined not through the legislative process but through a Department of Revenue Directive. The Department is making this a prospective position. It is very likely this will be challenged as economic nexus provisions in other states. We will monitor and update this news items with developments. (Directive 17-1: Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax, April 3, 2017)
North Dakota has enacted economic nexus legislation applicable to remote sellers. Sellers that do not have a physical presence in North Dakota will be required to collect and remit North Dakota sales or use tax if the seller meets either of the following criteria in the previous or current calendar year:
- The seller’s gross sales from the sale of tangible personal property and other taxable items delivered in North Dakota exceed $100,000, or
- The seller sold tangible personal property and other taxable items for delivery in North Dakota in 200 or more separate transactions.
The seller shall follow all applicable procedures and requirements of law as if the seller has a physical presence in North Dakota. Note that the legislation will become effective on the date the U.S. Supreme Court issues an opinion overturning Quill v. North Dakota, or otherwise confirming a state may constitutionally impose its sales or use tax upon an out-of-state seller in circumstances similar to those specified in the North Dakota legislation. (S.B. 2298, Laws 2017)
On March 22, 2017, Alabama Gov. Robert Bentley signed legislation authorizing the Alabama Department of Revenue (DOR) to require non-collecting remote sellers to report Alabama sales to the DOR and notify Alabama customers of their use tax obligations. The requirements would apply to out-of-state sellers who do not collect sales tax, use tax, or simplified sellers use tax on Alabama sales. Penalties can be assessed under the general penalty provisions. Specific details regarding the nature of the reporting and penalties for non-compliance have not be released. The legislation is effective July 1, 2017. (Senate Bill 86 (Act 2017-82), Alabama Department of Revenue)
On March 6, 2017, the South Dakota Sixth Judicial Court ruled that the state’s economic nexus legislation is unconstitutional. The legislation – which became effective May 1, 2016 – requires remote sellers without a physical presence in the state to collect and remit South Dakota sales and use tax on sales in the state if the retailer makes in-state sales exceeding $100,000 or makes 200 or more separate sales transactions in the previous or current calendar year. In the ruling, the state acknowledged that under Quill Corp. v. North Dakota, the State of South Dakota is prohibited from imposing the sales tax collection and remittance obligations. The state agreed that the statute was unconstitutional and agreed with the summary judgement finding. This was expected as the case progresses towards an appeal to the U.S. Supreme Court in an effort to overturn Quill. For our previous news item, see South Dakota Enacts Economic Nexus Legislation. (South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092, 3/6/17).
Wyoming has enacted economic nexus legislation pertaining to remote sellers. Effective July 1, 2017, remote sellers without a physical presence in Wyoming are required to collect and remit sales tax on sales in the state once the seller meets either of the following requirements in the current calendar year or immediately preceding calendar year:
- The seller's gross revenue from the sale of tangible personal property, admissions or services delivered into Wyoming exceeds $100,000, or
- The seller sold tangible personal property, admissions or services delivered into Wyoming in 200 or more separate transactions.
Notwithstanding other provisions of the law, the Wyoming Department of Revenue may bring an action to obtain a declaratory judgment that a seller is obligated to remit sales tax. This provision is similar to the South Dakota provisions which allows the state to initiate action against remote sellers that do not register to collect the tax. Upon the filing of an action for declaratory judgment, the court shall grant an injunction prohibiting the enforcement of the collection against any seller that is party to the action. We will monitor the courts for filing by remote sellers or the state and the impact on remote sellers. It does appear that the injunction is only against sellers that are party to the action filed. The legislation also amends the definition of "vendor" to include a remote seller. (H.B. 19, Laws 2017, effective July 1, 2017)