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The Arizona Department of Revenue has issued a ruling stating that a business that operates an online marketplace and makes online sales on behalf of third-party merchants is a retailer conducting taxable sales. The ruling states that gross receipts of that marketplace business derived from sales of tangible personal property to Arizona purchasers are subject to Arizona transaction privilege tax (TPT), provided that the business already has nexus for Arizona TPT purposes. The ruling states that a taxpayer operating an online market place is a retailer making taxable sales on behalf of a third-party merchant if it does the following:


  • provides a primary contact point for customer service, 
  • processes payments on behalf of the merchant, and 
  • provides or controls the fulfillment process


This appears to indicate that online marketplace providers that otherwise have nexus in Arizona will be deemed the seller for third party retailers that sell on its platform and that the online marketplace has the responsibility to collect and remit tax on all taxable sales.  This is the first state to take this position directly and not through a legislative change.  We will continue to monitor this to determine if a challenge is filed to the constitutionality of this position.  (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016) (TPR 16-3, Arizona Transaction Privilege Tax Ruling, Arizona Department of Revenue, September 20, 2016)


On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)


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.


An out-of-state retailer that sold nutritional supplements in Washington was liable for sales tax and B&O tax because it had substantial nexus with Washington. The company made wholesale sales to retailers and distributors and retail sales through infomercials. Employees of the company traveled to Washington to participate in trade shows, sales staff training, and promotional planningto support its wholesale sales. The company engaged marketing firms to assist in marketing its products in Washington. The marketing firms solicited sales from the taxpayer’s wholesale customers, received orders, and acted as intermediaries with retailers on promotional programs. The taxpayer asserted that the Commerce Clause prohibited Washington from subjecting the retail sales to sales tax. However, due to the company’s substantial physical presence in Washington, the Commerce Clause did not preclude taxation. Regarding liability for B&O tax, the company had substantial nexus because its in-state activities supported its abilities to establish and maintain a market for its goods in Washington. There is no requirement that the activities that create the nexus with the state be connected to specific sales. The company’s wholesale sales and marketing apparatus allowed it to obtain information on Washington’s nutritional products market. Additionally, its wholesale activities created a market for its retail sales, since its sales at grocery and drug stores resulted in phone inquiries from individuals. (Irwin Naturals v. Department of Revenue, The Court of Appeals of Washington, Division One, No. 73966-2-I, July 25, 2016)


Effective July 1, 2017, remote sellers must notify Louisiana purchasers at the time of sale that a purchase is subject to Louisiana use tax unless it is specifically exempt and there is no specific exemption for purchases made over the Internet, by catalog, or by other remote means. The notice must also include a statement that Louisiana law requires that use tax liability be paid annually on the individual income tax return or through other means as may be required by administrative rule. Per the legislation, "remote retailer" means a retailer that purposefully avails itself of the benefits of an economic market in Louisiana or who has any other minimum contacts with the state and who:


  • Is not required by law to register as a dealer or to collect Louisiana sales or use tax,
  • Makes retail sales of tangible personal property or taxable services in Louisiana and the cumulative annual gross receipts of the retailer and its affiliates from those Louisiana sales exceed $50,000 per calendar year, and
  • Does not collect and remit Louisiana sales and use tax on retail sales in the state.


By January 31st of each year, a remote seller must send to each Louisiana purchaser an annual notice containing the total amount paid by the purchaser to the retailer for property or taxable services in the preceding calendar year. The notice must list the dates and amounts of purchases if available, state whether the property or service is exempt from tax if known by the retailer, give the name of the retailer, and state that Louisiana use tax may be due.


By March 1st of each year, a remote seller must file with the Louisiana Department of Revenue an annual statement for each Louisiana purchaser which includes the total amount paid by the purchaser to that retailer for property or taxable services in the preceding calendar year. The statement shall not contain detail as to the property or services purchased. (Act 569 (H.B. 1121), Laws 2016, effective July 1, 2017)



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