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Alabama has adopted a new nexus rule outlining a business’s obligation to collect and remit local (county and municipal) sales and use tax, whether or not that business has a permanent physical location in the state. The rule will apply to all transactions occurring on or after January 1, 2014.  Any seller responsible for collecting and remitting state sales or use tax with respect to a sales or taxable use must collect and remit the corresponding sales or use tax for the appropriate local jurisdictions - including home rule authorities.  A seller may only avoid the obligation to collect and remit local sales and use tax on a transaction if the seller’s physical presence in the locality would not have been sufficient to create a state sales and use tax collection obligation if the transaction been an interstate transaction. The threshold used to determine whether a seller is obligated to collect and remit state sales or use tax for an interstate transaction will be used to determine whether the seller is obligated to collect and remit local sales or use tax by examining the contacts the seller has within each local jurisdiction where local sales or use tax is due. Activities that create a physical presence in a locality include delivery of goods in the retailer’s own vehicle, sales solicitation with shipment from outside the locality via common carrier and other activities where physical presence is established by the retailer.  An obligation to collect and remit a local jurisdiction’s sales or use tax under this rule does not obligate the business to file a return for or pay any other local tax or fee such as a local business license. This rule does not address sourcing issues associated with the determination of where tax is due or in which local jurisdiction tax is due. (Rule 810-6-5-.04.02, Alabama Department of Revenue, effective November 29, 2013, applicable on or after January 1, 2014)

(02/24/2014)

The federal Marketplace Fairness Act of 2013 was introduced in the House of Representatives and the Senate on February 14, 2013.  If passed, the bill would authorize states that meet certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes.  Under the legislation, a state would be authorized to require a remote seller to collect sales and use taxes only if the remote seller has gross annual receipts in total remote sales in the United States of more than $1 million in the preceding calendar year.

 

Member states of the Streamlined Sales and Use Tax (SST) Agreement would be authorized to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that member state pursuant to the provisions of the SST Agreement. The SST Agreement would have to include certain minimum simplification requirements. An SST member state could begin to exercise authority under the Act beginning 90 days after the state publishes notice of its intent to exercise such authority, but no earlier than the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Act.

 

States that are not members of the SST Agreement would be authorized, notwithstanding any other provision of law, to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to the state if the state implements certain minimum simplification requirements. The authority would begin no earlier than the first day of the calendar quarter that is at least six months after the state enacts legislation to exercise the authority granted by the Act.

 

To enforce collection requirements on remote sellers that do not meet the small seller exception, states that are not members of the SST Agreement would have to implement the minimum simplification requirements listed below. For SST member states to have collection authority, the requirements would have to be included in the SST Agreement.

 

-       A single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the state

-       A single audit of a remote seller for all state and local taxing jurisdictions within that state

-       A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.

-       Each state would have to provide a uniform sales and use tax base among the state and the local taxing jurisdictions within the state.

-       Each state would have to source all interstate sales in compliance with the sourcing definition outlined below.

-       Each state would have to provide information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the state and a rates and boundary database. States would have to provide free software for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect state and local rate changes. States would also have to provide certification procedures for persons to be approved as certified software providers (CSPs). Such CSPs would have to be capable of calculating and filing sales and use taxes in all the states qualified under the Act.

-       Each state would have to relieve remote sellers from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a CSP.

-       Each state would have to relieve CSPs from liability to the state or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.

-       Each state would have to relieve remote sellers and CSPs from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the state.

-       Each state would have to provide remote sellers and CSPs with 90 days’ notice of a rate change by the state or any locality in the state and update the taxability and exemption information and rate and boundary databases, and would have to relieve any remote seller or CSP from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.

 

For non-SST member states, the location to which a remote sale is sourced would be the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. SST member states would be required to comply with the sourcing provisions of the SST Agreement.

 

On March 22, 2013, the U.S. Senate voted 75-to-24 in favor of the concept of the Marketplace Fairness Act. The actual Marketplace Fairness Act was introduced in both chambers in February, but last week Senator Enzi, the sponsor of the Senate bill, offered an amendment to the 2014 Budget Resolution that would include insertion of the language of Marketplace Fairness in the budget. It was a largely symbolic tactic since the Budget Resolution itself will not become law, but by approving the amendment, the Senate has shown that there is broad, bipartisan support for the notion of requiring remote sellers to collect sales tax.

 

On May 6, 2013, the U.S. Senate passed the Marketplace Fairness Act with a 69-27 vote.

 

UPDATE: On September 18, 2013, Rep. Bob Goodlatte, the chairman of the House Judiciary Committee released a set of seven principles that he believes any internet sales tax bill should meet.  The seven principles outlined by Goodlatte are tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights, and privacy rights.  For more details on the principles, click here to see the House Judiciary Committee’s press release.

 

We are continuing to track the activities of these bills.  We are also involved in planning efforts involving states and businesses regarding the potential implementation consequences of passage.  Watch for updates in the Sales Tax Compass as well as through our Twitter account and LinkedIn updates. 

 

The text of the bill passed by the Senate can be viewed here.

 

For an update on this news item, visit Senate Introduces Marketplace Fairness Act of 2015.

 

(H.R. 684 and S. 336, as introduced in Congress on February 14, 2013; S.743, as passed by the U.S. Senate on May 6, 2013)

(09/20/2013)

Alabama has adopted a new nexus rule providing that out-of-state remote sellers making retail sales of tangible personal property in Alabama are required to register with Alabama for a sales tax license and collect and remit sales tax on all sales made within the state if the seller has substantial nexus.  The conditions under which an out-of-state seller must collect and remit sales tax include (but are not limited to) the following:  delivery within the state by means of a vehicle owned by the selling entity; the seller 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; or the seller employs or retains under contract any representative, agent, salesman, canvasser, solicitor or installer operating in the state under the authority of the person or its subsidiary for the purpose of selling, delivering, or the taking of orders for the sale of tangible personal property or any services subject to tax or otherwise solicits and receives purchases or orders by any agent or salesman. 

Under the new affiliate nexus provisions, a seller may also have substantial nexus in Alabama due to business activities conducted in-state by the seller’s affiliates.  A remote seller has substantial nexus with the state if the seller and an in-state business maintaining one or more locations within the state are related parties; and the remote seller and the in-state business use an identical or substantially similar name, trade name, trademark, or goodwill, to develop, promote, or maintain sales, or the in-state business and the seller pay for each other's services in whole or in part contingent upon the volume or value of sales, or the in-state business and the seller share a common business plan or substantially coordinate their business plans, or the in-state business provides services to, or that inure to the benefit of, the business related to developing, promoting, or maintaining the in-state market.  Specific rules define a related party based on the nature of the business within the Rule.  Transactions on which sales tax is collected by a licensed seller are exempt from use tax obligations of the purchaser.  (Rule 810-6-2-.90.01, Alabama Department of Revenue, effective August 24, 2012)

 

(10/23/2012)

On November 9, 2011, a bi-partisan group of U.S. senators introduced legislation that would give states implementing simplification requirements the authority to require remote sellers to collect sales and use tax. The legislation, called the Marketplace Fairness Act, would not limit the authorization to states who are members of the Streamlined Sales and Use Tax (SST) Agreement but would also apply to other states that implement some minimal simplification provisions. This follows other legislation on remote seller sales tax collection that has been introduced in Congress earlier this year.

Full member states of the SST Agreement would have collection authority for remote sales sourced to their state under the Agreement. The authority for full member states would start no earlier than the first day of the calendar quarter that is at least 90 days after the legislation is enacted. Collection authority would also be granted to non-SST member states that would start no earlier than the first day of the calendar quarter that is at least six months after the date that the state enacts legislation to impose the requirements. To comply, non-member states of the SST Agreement would need to implement the following minimum requirements:

• a single state-level agency to administer the collection and administration of all state and local taxes and local sales and use taxes on remote sales;
• a single audit for all state and local tax jurisdictions within the state;
• a single sales and use tax return for remote sellers and providers;
• a uniform sales and use tax base among the state and its local tax jurisdictions;
• a requirement that remote sellers and providers collect tax at the destination rate, which would be the sum of the state and local rate for the jurisdiction into which the sale is made;
• adequate software and services for remote sellers and providers to identify the applicable destination rate;
• certification procedures for providers to make software and services available to remote sellers and hold the providers harmless for errors or omissions resulting from information provided by the state;
• a provision to hold remote sellers using a provider harmless for provider errors and omissions;
• a provision relieving remote sellers from liability, including penalties and interest, for collecting the wrong amount of tax if the error was the result of relying on state-provided information; and
• 30 days notice to remote sellers and providers of a rate change by any state locality, which may only be effective on the first day of a calendar quarter.
• States would be able to certify a provider that would handle tax administration, collection, remittance and audits for transactions serviced or processed for remote seller sales.

A number of provisions in the legislation would apply whether a state receives collection authority as a member of the SST Agreement or by implementing the minimum requirements. A small seller exception would relieve remote sellers of collection if the seller and all related entities had $500,000 or less gross annual receipts in total remote sales in the United States in the preceding calendar year. A state’s collection authority would end on the date that the highest court of competent jurisdiction makes a final determination that the state no longer meets the requirements of the legislation, and the determination is not subject to appeal. The provision of the legislation would only apply to remote sales, not to intrastate sales or sourcing rules. However, states granted collection authority through the SST Agreement would need to comply with the intrastate provisions of the Agreement. (S. 1832, introduced in the U.S. Senate on November 9, 2011)

(11/14/2011)

A new online sales tax bill has been introduced in Congress. Contrary to the Main Street Fairness Act proposed this summer, participation in Streamlined Sales Tax is not required. According to the bill, in order for a state to require the collection of online sales and use taxes, the state must first implement a simplified system of sales tax administration, meeting four requirements. Remote sellers with less than $1 million in U.S. sales or $100,000 in sales in the state are exempt. Remote sellers will only have to file one sales and use tax return specific to remote sellers for the state, and they cannot be required to file returns more frequently than other sellers. There must be a uniform statewide tax base. Finally, remote sellers must collect sales and use tax under one of three rate structures: a single rate blending the state rate and the average local rate; the maximum state rate exclusive of local rates, or; the tax rate of the customer’s location, in which case the state must make available software that eases the burden of collecting at multiple rates. If a state imposes a lower rate on food or drugs and medicine, it may require remote sellers to collect sales and use tax at these rates. Once a state is authorized, the state may begin collecting six months after publishing a notice that lists the requirement, the criteria under which the collection is required, the effective date, the rate(s), and where remote sellers can obtain the tax filing return. (H.R. 3179)

(11/14/2011)

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