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A South Carolina Court did not grant a request for injunction filed by the South Carolina Department of Revenue (DOR) to make Amazon collect South Carolina tax on FBA (Fulfillment by Amazon) sales. On November 8, 2017 the DOR had filed the motion to request that Amazon begin collecting sales tax on sales by third party sellers using Amazon’s platform within 10 days and remit these collected taxes to a trust fund to be held until the case is decided.  The South Carolina Department of Revenue argued that the ultimate tax due could exceed $500 million and the risk to the Department for collection or if it is determined that the tax is owed by the 3rd Party Sellers is so significant that the injunction should be granted.  The case premise is that Amazon has an obligation to collect tax on all sales executed through its platform including sales by 3rd party independent sellers. The case is scheduled to be heard in early November 2018.  Until then, the uncertainty regarding who has the obligation to collect tax on sales to customers in South Carolina remains. We will continue to monitor for developments. 

(02/14/2018)

The Multistate Tax Commission (MTC) has announced a sales/use tax and income/franchise tax amnesty program for online sellers that will run from August 17 to November 1, 2017 (previously October 17, 2017). Qualified online sellers with potential tax liability may be able to use the MTC's voluntary disclosure agreement (VDA) to negotiate a settlement during the amnesty period if they meet certain eligibility requirements. Taxpayers that have not been contacted by any of the states participating in the amnesty program will be able to apply to start remitting sales tax on future sales without penalty or liability for unpaid, prior accumulated sales tax in the participating states. 25 MTC member states have agreed to participate in the amnesty program. The participating states include: 

 

  • Alabama
  • Arkansas
  • Colorado (sales/use tax only)
  • Connecticut
  • District of Columbia (may not waive all prior periods)
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts (special provisions apply)
  • Minnesota (special provisions apply)
  • Missouri
  • Nebraska (may not waive all prior periods)
  • New Jersey
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas 
  • Utah
  • Vermont
  • Wisconsin (will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax)

 

Some of the additional states may require a limited look-back period for prior tax liabilities. Sellers who wish to participate in the program will need to file the voluntary disclosure program paperwork during the program dates. The MTC will route the paperwork for each participating state for which the seller is seeking amnesty protection. For more details visit the MTC website.

 

UPDATE: The Multistate Tax Commission's online seller amnesty program is now over. If you didn't take advantage of this program but realize you need to evaluate your activities, you can contact us here.

(11/07/2017)

On June 12, 2017, Rep. Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goodlatte (R-VA) introduced the No Regulation Without Representation Act of 2017. A previous version of this bill had been introduced in 2016 and failed to pass. Under the proposed bill, a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed. Under the proposed bill, the physical presencerequirement would apply to sales and use taxand net income and other business activities taxes, as well as the states’ ability to regulateinterstate commerce. “Physical presence” in a state includes:

 

  • maintaining a commercial or legal domicile in the state;
  • owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the state;
  • leasing or owning tangible personal property (other than computer software) of more than de minimis value in the state;
  • having one or more employees, agents or independent contractors present in the state who provide on-site design, installation, or repair services on behalf of the remote seller;
  • having one or more employees, exclusive agents or exclusive independent contractors present in the state who engage in activities that substantially assist the person to establish or maintain a market in the state; or
  • regularly employing in the state three or more employees for any purpose.

 

“Physical presence” in a state would not include:

 

  • entering into an agreement under which a person, for a commission or other consideration, directly or indirectly refers potential purchasers to a person outside the state, whether by an Internet-based link or platform, Internet Web site or otherwise;
  • any presence in a state for less than 15 days in a taxable year (or a greater number of days if provided by state law);
  • product placement, setup or other services offered in connection with delivery of products by an interstate or in-state carrier or other service provider;
  • Internet advertising services provided by in-state residents which are not exclusively directed towards, or do not solicit exclusively, in-state customers;
  • ownership by a person outside the state of an interest in a limited liability company or similar entity organized or with a physical presence in the state;
  • the furnishing of information to customers or affiliates in such state, or the coverage of events or other gathering of information in such state by such person, or his representative, which information is used or disseminated from a point outside the state; or
  • business activities directly relating to such person's potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the state.

 

In addition, the bill prohibits the imposition or assessment of a sales, use or other similar tax or a reporting requirement unless the purchaser or seller has physical presence in the state.  This would prohibit all the remote seller legislation (click through, affiliate, economic, marketplace and reporting/notification). If enacted, the legislation would apply with respect to calendar quarters beginning on or after January 1, 2018. (No Regulation Without Representation Act of 2017)

(07/12/2017)

Effective June 1, 2017, the South Carolina Department of Revenue will no longer mail Admissions Tax Returns (L-511) to taxpayers. Admissions tax must be collected by all places of amusement when an admission fee has been charged. The tax is 5% of the paid admissions. Failure to properly complete the L-511 Admissions Tax Return will result in a $500 Failure to Comply penalty.The tax returns are due by the 20th of the month following the period covered by the return. For more information, click here. (Notice, South Carolina Department of Revenue, May 5, 2017)

(06/05/2017)

Annual membership fees that allow members to receive benefits associated with online shopping are subject to South Carolina sales and use tax since they allow members to receive tangible personal property (streaming video and audio) that are subject to sales tax as a benefit of membership. Additionally, the fees are subject to sales and use tax because they entitle members to receive discounts on the purchase price and the cost of delivery of items that are subject to sales and use tax, and these benefits are not available to nonmembers. South Carolina imposes sales tax on the total proceeds of sale, without any deduction for the cost of goods sold, cost of materials, labor, service, transportation costs, or other expenses. The fees remain taxable regardless of the fact that they also entitle members to receive benefits that may not be subject to sales and use tax. The one-month trial membership offered by the taxpayer is not subject to tax since there is no consideration for the membership and therefore, no retail sale.(Private Letter Ruling #16-1, South Carolina Department of Revenue, July 6, 2016)

(05/24/2017)

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