Discover the Keys to Efficient Sales Tax Compliance. Register for the 4/23 webinar!
Stay up to date with sales tax: Join our mailing list!
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:
Massachusetts has enacted a two-month tax amnesty program beginning March 16, 2015 and ending May 15, 2015. The amnesty program applies to tax years or periods that were stated on a Notice of Assessment issued by the Commissioner of Revenue on or before January 1, 2015. The amnesty program is limited to eligible taxpayers with existing tax liabilities for tax types that were not included among the tax types covered by the amnesty established under Technical Information Release 14-8, August 25, 2014. The eligible tax types include all corporate excise tax imposed under G.L. c. 63 (corporate excise, financial institutions, insurance, public utilities, and banks), estate taxes imposed under G.L. c. 65C, fiduciary income taxes imposed under G.L. c. 62, and individual use tax on motor vehicles imposed under G.L. c. 64I. Taxpayers will be notified by the Commissioner if they are eligible to participate in the amnesty program. Under the program, if an eligible taxpayer pays the full amount of tax and interest due for any period as shown on the Tax Amnesty Notice, all unpaid penalties will be waived. This includes penalties imposed for failure to timely file a return; failure to file a proper return; underpayment of tax attributable to negligence or disregard of the tax laws or to a substantial understatement of tax; failure to timely pay a tax liability; failure to file, report or pay electronically; failure to pay the proper amount of any estimated tax payment; and failure to disclose an inconsistent filing position for such period. If an eligible taxpayer pays the full outstanding balance of tax and interest with respect to previously filed returns or assessments, the Commissioner may waive the unpaid penalties and the portion of interest charges directly attributable to those penalties for those tax periods. By participating in the program, the taxpayer waives the possibility of obtaining a refund of an amount paid pursuant to the amnesty program and of any right to contest liability for the amounts paid pursuant to amnesty. Corporate taxpayers must be in compliance with the Massachusetts Secretary of State’s filing requirements to be eligible for the program. Penalties that have been assessed or that could be assessed against a taxpayer for liabilities relating to tax types other than the eligible tax types are not eligible for waiver under the program. Eligible taxpayers who participate in the program will not be eligible to participate in future amnesty programs for 10 years. (Technical Information Release 15-2, Massachusetts Department of Revenue, March 16, 2015)
The U.S. Supreme Court has held that a federal district court has jurisdiction over the lawsuit challenging the constitutionality of Colorado’s reporting requirements legislation for out-of-state retailers and may enjoin enforcement of the requirements.
What was being challenged in this case was the Tax Injunction Act, which is a federal provision that restricts a taxpayer from challenging state tax cases in federal courts. The federal district court’s enjoinder of the law would not prevent the state from assessing, levying, or collecting tax, as prohibited under the federal Tax Injunction Act because the notice and reporting requirements involve information gathering, not tax assessment, levy or collection. The lawsuit would not restrain assessment, levy or collection of tax merely because it might inhibit those activities.
The case raises the question of how close a state law can get to the tax administration process before it is covered by the Tax Injunction Act which prohibits federal court challenges.
In the Supreme Court’s decision, Justice Kennedy concurred with an unqualified opinion, but included a surprising statement.He explained the National Bellas Hess and Quill decisions then said “Given these challenges in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier”. He closed his opinion by saying “The instant case does not raise this issue in a manner appropriate for the Court to address it. It does provide, however, the means to note the importance of reconsidering doubtful authority. The legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess.” It is unclear if this could be a request for a nexus case to come before the Court.
It remains to be seen if the Colorado reporting requirements statute is constitutional. The case has been remanded to the Tenth Circuit to decide whether comity argument remains available to Colorado. For now, the Colorado reporting requirement is on hold and in limited situations, taxpayers can now bring state tax cases into Federal Courts.
For our previous news item on this case, see Injunction Blocking Colorado Reporting Requirements For Out-of-State Retailers is Lifted.(Direct Marketing Association v. Brohl, U.S. Supreme Court, No. 13-1032, March 3, 2015)
On March 10, 2015, a bipartisan group of senators introduced the Marketplace Fairness Act of 2015. Similar legislation – the Marketplace Fairness Act of 2013 – was previously introduced in February 2013 and passed by the Senate on May 6, 2013. That legislation failed to be enacted. If passed, the Marketplace Fairness Act of 2015 would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. For more information on the previous legislation, visit Federal Government Introduces New Remote Seller Bill. (Marketplace Fairness Act of 2015, March 10, 2015)
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)