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Rhode Island’s Fiscal Year 2018 budget bill contains a provision requiring the Tax Administrator to establish a tax amnesty program open to all taxpayers who are delinquent on any Rhode Island state taxes. The amnesty program will take place from December 1, 2017 to February 15, 2018. The amnesty program applies to any taxable period ending on or before December 31, 2016. For qualified taxpayers, the Tax Administrator generally will not seek civil or criminal prosecution, will waive penalties, and will reduce the applicable interest rate by 25% (e.g. the 2016 interest rate of 18% would be reduced to 13.5%). The amnesty program will be open to any taxpayer who pays the tax and interest due upon filing the amnesty tax return, or who enters into a short-term installment payment agreement for reasons of financial hardship. The Rhode Island Division of Taxation will post the application form for the amnesty program. Amnesty will not be granted to taxpayers who are under any criminal investigation or are a party to any civil or criminal proceeding, pending in any court of the United States or the state of Rhode Island, for fraud in relation to any state tax imposed by the law of the state and collected by the tax administrator. (H.B. 5175, Laws 2017)

(09/28/2017)

On August 3, 2017, Rhode Island enacted affiliate and economic nexus with an alternative reporting requirement structure for those remote sellers that do not collect Rhode Island tax. Per the enacted legislation, the existence and/or presence of a non-collecting retailer's, referrer's, or retail sale facilitator's in-state software on the devices of in-state customers constitutes physical presence in Rhode Island under Quill. Other activities that will constitute nexus in the state include:

 

  • use in-state software to make sales at retail of taxable goods/services;
  • sell, lease, deliver, or participate in any activity relating to the sale, lease, or delivery of taxable goods/services, including: use of a referrer, retail sale facilitator, or other third party for direct response marketing or referral;
  • use of a sales process including listing, branding, selling, soliciting, processing, fulfilling, or exchanging;
  • offer taxable goods/services for sale through retail sale facilitators; or
  • are related to a person with physical presence in Rhode Island.

 

A remote seller who satisfies the economic activity threshold has the option to collect tax or comply with the reporting requirement.  The economic threshold activities are defined as:

 

  • Has gross revenue from the sale of tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or has taxable services delivered into Rhode Island equal to or exceeding $100,000; or
  • Has sold tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or taxable services for delivery into Rhode Island in 200 or more separate transactions.

 

“In-state software” is defined as “software used by in-state customers on their computers, smartphones, and other electronic and/or communication devices, including information or  software such as cached files, cached software, or 'cookies', or other data tracking tools, that are stored on property in this state or distributed within this state, for the purpose of purchasing tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or taxable services.”

 

Beginning on August 17, 2017, and for each tax year thereafter, a non-collecting retailer shall either register to make sales at retail and collect and remit sales and use tax on all taxable sales into the state or:

 

  • Post a conspicuous notice on its website that informs in-state customers that sales or use tax is due on certain purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return;
  • At the time of purchase, notify in-state customers that sales or use tax is due on taxable purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return;
  • Within 48 hours of the time of purchase, notify in-state customers in writing that sales or use tax is due on taxable purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return reflecting said purchase;
  • On or before January 31 of each year, including January 31, 2018, for purchases made in calendar year 2017, send a written notice to all in-state customers who have cumulative annual taxable purchases from the non-collecting retailer totaling $100 or more for the prior calendar year. The notification shall show the name of the non-collecting retailer, the total amount paid by the in-state customer to the non-collecting retailer in the previous calendar year, and, if available, the dates of purchases, the dollar amount of each purchase, and the category or type of the purchase, including, whether the purchase is exempt or not exempt from taxation in Rhode Island; and
  • Beginning on February 15, 2018, and not later than each February 15 thereafter, a non-collecting retailer that has not registered in Rhode Island for a permit to make sales at retail and collect and remit sales and use tax on all taxable sales into the state for any portion of the prior calendar year, shall file with the division on such form and/or in such format as the division prescribes an attestation that the non-collecting retailer has complied with the above requirements

 

At such time during any calendar year, or any portion thereof, that a referrer receives more than $10,000 from fees, commissions, and/or other compensation paid to it by retailers with whom it has a contract or agreement to list and/or advertise  for sale tangible personal property, prewritten computer software delivered electronically or by  load and leave, and/or taxable services, the referrer shall within 30 days provide written notice to all such retailers that the retailers' sales may be subject to this state's sales and use tax.

 

Beginning January 15, 2018, and each year thereafter, a retail sale facilitator shall provide the division of taxation with:

 

  • A list of names and addresses of the retailers for whom during the prior calendar year the retail sale facilitator collected Rhode Island sales and use tax; and
  • A list of names and addresses of the retailers who during the prior calendar year used the retail sale facilitator to serve in-state customers but for whom the retail sale facilitator did not collect Rhode Island sales and use tax.

 

There are exemptions for referrers and retail sale facilitators that have been provided within 90 days of the date of sale either a copy of the retailer's Rhode Island sales tax permit or its resale certificate, or evidence of a fully completed Rhode Island or Streamlined agreement sales and use tax exemption certificate.

 

Any non-collecting retailer, referrer, or retail sale facilitator that fails to comply with any of the above requirements shall be subject to a penalty of $10 for each such failure, but not less than a total penalty of $10,000 per calendar year. Each instance of failing to comply with the requirements shall constitute a separate violation for purposes of calculating the penalty. (Ch. 302 (H.B. 5175), Laws 2017)

(08/14/2017)

Washington has enacted legislation that creates marketplace nexus and reporting requirements provisions and expands the state’s economic nexus provision. Effective January 1, 2018, remote sellers, referrers and marketplace facilitators must elect to either collect and remit Washington sales or use tax on taxable sales into Washington or comply with notice and reporting requirements. The requirements apply to remote sellers or marketplace facilitators with gross receipts from retail sales sourced to Washington in the current or preceding calendar year of at least $10,000. A referrer is subject to the requirements if during the current or immediately preceding calendar year, gross business income received from referral services apportioned to Washington, whether or not they are subject to sales and use tax, and from retail sales sourced to Washington, if any, is at least $267,000. This is in addition to its Click Through and Affiliate nexus provisions which were passed in 2015. Until January 1, 2020, the requirements do not apply with respect to the retail sale of digital products and digital codes, other than specified digital products and digital games and digital codes used to redeem specified digital products and digital games, by a marketplace seller through a marketplace facilitator or directly resulting from a referral.

 

If the election is to comply with the notice and reporting requirements, a seller, other than a referrer acting in its capacity as a referrer, subject to the notice and reporting requirements of this section must post a conspicuous notice on its marketplace, platform, web site, catalog, or any other similar medium that informs Washington purchasers that:

 

  • Sales or use tax is due on certain purchases;
  • Washington requires the purchaser to file a use tax return; and
  • The notice is provided under the requirements of the legislation. 

 

The seller must provide a notice to each consumer at the time of each retail sale that must include the following information:

 

  • A statement that neither sales nor use tax is being collected or remitted upon the sale;
  • A statement that the consumer may be required to remit sales or use tax directly to the Washington State Department of Revenue (department); and
  • Instructions for obtaining additional information from the department regarding whether and how to remit the sales or use tax to the department.

 

The notice must be prominently displayed on all invoices and order forms including, where applicable, electronic and catalog invoices and order forms, and upon each sales receipt or similar document provided to the purchaser, whether in paper or electronic form.Sellers subject to the notice and reporting requirementsmust also provide an annual report no later than February 28 of each year to each Washington purchaser stating that the seller did not collect sales or use tax on sales and that the consumer may be required to remit such tax directly to the department and including details on the purchaser’s transactions. This must be sent for first class mail if a billing or shipping address is known and if not known then via email. An annual report must also be filed with the department by February 28 of each year that includes purchasers’ information (including billing and shipping addresses and total dollar amount of the purchases) and an affidavit from a seller’s officer affirming that reasonable efforts were made to comply with notice requirements.

 

A referrer subject to the notice and reporting requirementsmust post a conspicuous notice on its platform informing Washington purchasers that:

 

  • sales or use tax is due on certain purchases;
  • the seller may or may not collect and remit retail sales tax on a purchase;
  • Washington requires the purchaser to file a use tax return if retail sales tax is not assessed at the time of a taxable sale by the seller;
  • the notice is provided under the requirements of the legislation. 

 

A referrer must send a notice by February 28 of each year to each marketplace seller to whom the referrer transferred a potential purchaser located in Washington during the previous year. The notice must state that the seller must collect and remit retail sales or use tax on all taxable retail sales sourced to Washingtonor comply with notice requirements. A referrer must also submit an annual report to the department by February 28 of each year that includes a list of sellers who received notice and an affidavit from a referrer’s officer stating that the referrer made reasonable efforts to comply with notice and reporting requirements.

 

The department MUST assess a penalty of $20,000 in addition to any other penalties against any seller, other than a referrer acting in its capacity as a referrer, or to a referrer that fails to provide notice to consumers on each order and on their marketing and sales materials.  This penalty can be assessed once per year regardless of the number of notices a seller fails to provide.  Additional penalties ranging from $5,000 to $100,000 plus $20,000 for each $50,000 in sales above $300,000 in sales for failure to issue the annual notice to consumers must be assessed.  The penalty for failure to provide the annual statement to the Department will be assessed at $25 per consumer not included in the report with a minimum penalty of $20,000.  All these penalties are cumulative and interest will accrue on the penalties.  It is apparent that Washington is “encouraging” registration and collection in lieu of the notice option by imposing such harsh penalties for non-compliance.  There are provisions for a conditional waiver of penalties if the seller enters into an agreement with the state to come into compliance with the provisions as well as some limited penalty relief due to circumstances beyond the seller’s control or due to reasonable cause and not willful neglect.  There are also provisions for personal liability related to the tax for a variety of reasons (including accepting an invalid exemption certificate) – not just related to the new remote seller provisions.

 

A positive component of the bill is a limitation on class action lawsuits against retailers related to the collection of sales tax.  Consumers still have rights to file refunds directly with the department.   

 

Beginning July 1 2017, economic nexus for Washington business and occupation (B&O) tax purposes is extended to persons engaged in retail sales as long as the person has more than $267,000 in receipts from Washington, more than $53,000 property or payroll in the state, or at least 25 percent of the person’s total property, payroll, or total receipts in Washington. A person who has a substantial nexus with Washington in the current calendar year based solely on the person's property, payroll, or receipts in Washington during the current calendar year, is subject to the B&O tax imposed for the current calendar year only on business activity occurring on and after the date that the person established a substantial nexus with Washington in the current calendar year. For our previous news item on Washington’s economic nexus provisions, see Washington Enacts Click-Through and Economic Nexus Provisions. (H.B. 2163, Laws 2017)

(07/26/2017)

Effective January 1, 2018, a seller is deemed to have substantial nexus in Ohio if the seller: 

 

  • uses in-state software to sell or lease taxable tangible personal property or services to consumers, provided the seller has gross receipts in excess of $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in Ohio, or
  • provides or enters into an agreement with another person to provide a content distribution network in Ohio to accelerate or enhance the delivery of the seller's web site to consumers, provided the seller has gross receipts in excess of $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in Ohio

 

"In-state software" means computer software, as defined in section 5739.01, that is stored on property in Ohio or is distributed within Ohio for the purpose of facilitating a seller's sales. Computer software means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.  This could include internet cookies.

 

"Content delivery network" means a system of distributed servers that deliver web sites and other web content to a user based on the geographic location of the user, the origin of the web site or web content, and a content delivery server. Ohio previously enacted Click Through and Affiliate nexus in 2015. It will be interesting to see if a challenge is upheld as the Ohio Commercial Activity Tax (CAT) has an $500,000 economic nexus threshold which has been upheld as an adequate quantitative standard that ensures that taxpayer’s nexus with Ohio is substantial.  (H.B. 49, Laws 2017)

(07/26/2017)

Effective October 1, 2017, Maine’s legislature has enacted legislation requiring remote sellers to collect and remit sales tax on sales of tangible personal property, products transferred electronically or services that are delivered into Maine, if:

 

  • The seller’s gross revenue from such sales into Maine in the previous calendar year or current calendar year exceeds $100,000; or
  • The seller made such sales into Maine in at least 200 separate transactions in the previous calendar year or the current calendar year.

 

The state may bring a declaratory judgment action against remote sellers to establish the federal and state legal validity of the tax collection obligation. The obligation to collect and remit the sales and use tax required by the legislation may not be applied retroactively. If an injunction against the legislation is lifted, the obligation to collect sales and use tax applies from that date forward for persons covered by the injunction. The legislature overrode the Governor’s veto of the legislation. We expect litigation challenging the law to be filed as has happened in other states. (L.D. 1405 (S.P. 483), Laws 2017)

(07/12/2017)

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