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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)


Both houses of Congress introduced legislation on July 29, 2011 that would give member states of the Streamlined Sales and Use Tax (SST) Agreement to collect sales tax from remote sellers that do not qualify for the small-seller exception although this is not defined in the bill. The legislation is referred to as the Main Street Fairness Act. Similar legislation was introduced previously but did not pass. Several provisions that appeared in previous versions of the bill have been eliminated. These include the requirement that the minimum SST simplifications include a single sales and use tax rate per taxing jurisdiction (the SST Agreement currently includes this requirement), a path to SST membership for federally recognized Indian tribes that comply with the Agreement, and a mandate that the minimum simplification requirements in the Agreement apply to sales and use tax on communications services. The new versions of the bill expand on previous versions’ requirement for reasonable vendor compensation by finding that the SST Agreement’s currently mandated compensation satisfies the minimum requirement. There are limitations on the impact of collection of tax under this bill and the creation of nexus for other taxes. The new bills would provide for judicial review of SST Governing Board actions by the U.S. Court of Federal Claims (S. 1452 and H.R. 2701, introduced in both houses of Congress on July 29, 2011)


The U.S. House of Representatives has introduced a resolution opposing any legislation that would grant state governments the authority to impose any sales tax collecting requirements on out-of-state small businesses that partake in online commerce. Introduced by Rep. Daniel Lungren, R-Calif., the resolution states that introducing such tax legislation would adversely affect the economy and consumers and impede the growth of interstate commerce. (H. Res. 95, introduced in the U.S. House of Representatives on February 16, 2011)


This is possible when trucking companies use using trucks in the state to fulfill client contracts even if the taxpayer was exempt from paying sales tax on their initial purchase of these same trucks. Certain trucking companies were taking advantage of a 'sales tax drive-out' exemption. However, the trucking companies would eventually use these trucks in the state of Alabama to fulfill client contracts. It was found that these trucking companies were not paying sales or use tax to any state for the trucks that they had purchased. Since nexus had clearly been established and Alabama imposes a use tax on the use of tangible personal property in the state, the trucking companies were found to be liable. (Whatley Contract Carriers, LLC v. State of Alabama Department of Revenue, March 23, 2004.)


Under current Alabama law interpretations, two companies can be owned by the same parent company and be treated as two separate companies for sales and use tax collection responsibilities. One company having nexus in Alabama does not require that another company owned by the same parent company automatically have nexus within the state. If the two companies truly operate independently of each other, each company will be evaluated separately to determine if they have nexus in Alabama. (Revenue Ruling No. 03-001, August 4, 2003.)



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