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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 seller to 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))

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(08/23/2016)

Alabama has held that an out-of-state retailer that sold books and educational materials was subject to Alabama use tax since the taxpayer had sufficient contacts or nexus in Alabama to require it to collect, report, and remit use tax. During the school year, the taxpayer mailed catalogs, order forms, and promotional coupons to schools as well as homes where children were homeschooled. At the schools, classroom teachers distributed catalogs and order forms to students, collected the completed order forms then mailed the forms and payment to the taxpayer. The taxpayer then shipped the items to the attention of the teacher and the teacher distributed the items to the students. The state held that the taxpayer clearly directed its sales activities towards Alabama residents when it mailed catalogs, order forms, and promotional materials to thousands of school teachers and parent educators in the state during every month of the school year in the period at issue. The taxpayer also availed itself of Alabama’s economic market by making nearly $18 million in sales to Alabama customers during the period at issue. As such, the taxpayer had due process nexus with Alabama. The state also held that the taxpayer had commerce clause nexus with Alabama since the activities of the teachers in Alabama were clearly and significantly associated with the taxpayer’s ability to establish and maintain a market for its sales in-state. By agreeing to distribute the materials to students, the teachers were in substance soliciting or at least promoting sales on behalf of the taxpayer. That the teachers were not required to do so, may not personally benefit from the activities, may also purchase items from the taxpayer, and were motivated to help their students and not the taxpayer, were deemed irrelevant. The teachers did substantially more than just distribute the taxpayer’s materials. They gathered completed order forms and compiled them on a master order form. They mailed the master order form and the money to the taxpayer, received and distributed the purchased items, and communicated and worked with the taxpayer to resolve any issues concerning the transactions. In substance, the teachers were a voluntary sales force whose activities in Alabama were essential and necessary for the taxpayer to make sales in Alabama. As a result, the presence and activities of the teachers on behalf of the taxpayer established a physical presence for the taxpayer in Alabama sufficient to establish commerce clause nexus. (ScholasticBook Clubs, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 14-374, March 25, 2016)

(07/25/2016)

Alabama has enacted a new economic nexus rule applying to out-of-state sellers making sales into Alabama. The rule applies to all transactions occurring on or after January 1, 2016. The rule adds another condition to the activities for which an out of state seller will be required to collect tax.  The rule does not set a strict economic presence test but rather adds an economic sales threshold to the test that will apply if the out of state seller also conducts other activities in the state that establish nexus.  An out of state seller is required to collect Alabama tax when:

 

  • the seller’s retail sales of tangible personal property sold into the state exceed $250,000 per year based on the previous calendar year’s sales; and
  • the seller conducts one or more of the activities described in §40-23-68, Code of Alabama:

o   Maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business;

o   Qualifies to do business or registers with the state to collect the tax levied by this chapter;

o   Employs or retains under contract any representative, agent, salesman, canvasser, solicitor or installer operating in this state under the authority of the person or its subsidiary for the purpose of selling, delivering, or the taking of orders fro the sale of tangible personal property or any services taxable under this chapter or otherwise solicits and receives purchases or others by any agent or salesman;

o   Solicits, pursuant to a contract with a broadcaster or publisher located in this state, orders for tangible personal property by means of advertising which is disseminated primarily to consumers located in this state and only secondarily to bordering jurisdiction;

o   Solicits orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities. Notwithstanding the previous sentence, a seller who contracts with a provider of call center services shall not be deemed to benefit from telecommunication activities occurring in this state or from the location in this state of authorized installation, servicing, or repair facilities merely as a result of contracting for and receiving only call center services from a call center located in this state. The preceding sentence shall only apply for call centers, as authorized or specified in Division 3 of Article 17 of Chapter 10 of Title 41, and placed in service in this state on or before October 1, 2003;

o   Has, under a franchise or licensing arrangement or contract, a franchisee or licensee operating under its trade name;

o   Solicits, pursuant to a contract with a cable television operator located in this state, orders for tangible personal property by means of advertising which is transmitted or distributed over a cable television system in this state;

o   Solicits orders for tangible personal property by means of a telecommunication or television shopping system which is intended by the person to be broadcast by cable television or other means of broadcasting, to consumers located in this state;

o   Maintains any other contract with this state that would allow this state to require the seller to collect and remit the tax due under the provisions of the Constitution and laws of the United States; or

o   Distributes catalogs or other advertising matter and by reason thereof receives and accepts orders from residents, within the State of Alabama, shall be subject to all the provisions of this chapter and shall, except as otherwise provided in subsection (f), on or before the 20th day of the month following the close of each month file with the department a return for the preceding month in such form as may be prescribed by the department showing the total sales price of the tangible personal property sold by such seller, the storage, use, or consumption of which became subject to the tax imposed by this article during the preceding month and such other information as the department may deem necessary for the proper administration of this article

 

Sellers may satisfy these requirements by one of these methods:

  • Using the collecting, reporting and remitting provisions of Article 2, Chapter 23 of Title 40, Code of Alabama, or
  • Using the collecting, reporting and remitting provisions created by the Simplified Sellers Use Tax Remittance Act codified at §§40-23-191 through 40-23-199, Code of Alabama.

(Rule 810-6-2-.90.03, Alabama Department of Revenue, effective October 22, 2015, applicable on or after January 1, 2016)

(10/26/2015)

On June 15, 2015, Representative Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act (RTPA) of 2015 in the U.S. House of Representatives. The bill – similar to the Marketplace Fairness Act (MFA) of 2015 – pertains to sales and use taxcollection obligations for remote sellers, but the RTPA contains some differences and several additional provisions. Unlike the MFA’s $1 million small seller exception, the RTPA’s small seller exception is as follows: first year: $10 million; second year: $5 million; third year: $1 million. The exception goes away in the fourth year. Furthermore, under the RTPA sellers utilizing an electronic marketplace are not considered small sellers and are not entitled to the exception, no matter the year. Under the RTPA, sellers would not be audited by states where they don’t have a physical presence. There would be a three year statute of limitations for assessments on remote sellers. The bill would enable remote sellers to refund over-collected tax to customers. The RTPA also specifies that a state would not be authorized to impose a sales and use tax collection requirement on remote sellers until it has certified multiple software providers that are certified in all states seeking to impose authorization requirements. The RTPA would also allow customers to pursue refunds of over-collected tax from remote sellers. However, RTPA does not preempt states from imposing sales and use taxes on remote sellers that do not have physical presence under this definition. It merely authorizes states to impose sales and use tax on remote sellers without a physical presence. Under the RTPA, if a seller has nexus under existing law, including Quill v. North Dakota, then the state may still impose a sales and use tax collection requirement.  The bill is assigned to the Judiciary Committee just like the MFA.  On July 1, 2015 it was referred to the Subcommittee on Regulatory Reform, Commercial And Antitrust Law. (H.R. 2775, the Remote Transactions Parity Act of 2015)

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(09/08/2015)

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)

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(03/16/2015)

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