Stay up to date with sales tax: Join our mailing list!


On March 22, 2016, South Dakota Governor Dennis Daugaard signed into law economic nexus legislation. The legislation, effective May 1, 2016, adds sales and use tax collection requirements for remote sellers who meet certain sales thresholdsand makes sales of tangible personal property, products transferred electronically, and services for delivery into South Dakota. It is important to note that virtually everything is taxable in South Dakota including professional services like legal and accounting services.

 

A retailer would be presumed to be liable for the collection of sales and use tax in South Dakota, even if the seller does not have a physical presence in state, if the seller meets either of the following criteria in the previous or current calendar year:

 

  • The seller’s gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds $100,000; or
  • The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions.

 

In anticipation of a challenge and really following Justice Kennedy’s advice in the Direct Marketing Association decision, the legislation provides an expedited appeals process for any challenges to the constitutionality of the law. The legislation also provides that enforcement of the law will be “stayed by the courts until the constitutionality of this law has been clearly established by a binding judgment, including, for example, a decision from the Supreme Court of the United States abrogating its existing doctrine, or a final judgment applicable to a particular taxpayer.” All remote sellers should evaluate their South Dakota sales activities and determine their position on this new law. (S.B. 106, effective May 1, 2016)

 

For an update on this news item, click here

(03/28/2016)

Louisiana has enacted click-through and affiliate nexus provisions, applicable to tax periods beginning on and after April 1, 2016. Louisiana’s definition of a dealer for tax collection purposes is expanded to include any person soliciting business through an independent contractor or other representative pursuant to an agreement with a Louisiana resident or business under which the resident or business, for a commission, referral fee, or other consideration, directly or indirectly, refers potential customers to the seller, whether by an internet link, an in-person oral presentation, telemarketing, or otherwise. The click-through legislation applies to sellers whose cumulative gross receipts from sales of tangible personal property to customers in Louisiana who are referred to the person through such an agreement exceed $50,000 during the preceding 12 months. This presumption may be rebutted if the person can demonstrate that he cannot reasonably be expected to have gross receipts in excess of $50,000 for the succeeding 12 months.

 

The legislation also expands the definition of a dealer to include any person who:

 

  • Sells the same or a substantially similar line of products as a Louisiana retailer under the same or substantially similar business name, using the same trademarks, service marks, or trade names that are the same or substantially similar to those used by the Louisiana retailer.
  • Solicits business and develops and maintains a market in Louisiana through an agent, salesman, independent contractor, solicitor, or other representative pursuant to an agreement with a Louisiana resident or business, under which the affiliated agent, for a commission, referral fee, or other consideration, engages in activities in Louisiana that benefits the person's development or maintenance of a market for its goods or services in the state. Such activities of the affiliated agent shall include referral of potential customers to the person, either directly or indirectly, whether by link on an Internet website or otherwise.

 

Additionally, a person will be presumed to be a dealer if it holds a substantial ownership interest, directly or through a subsidiary, in a retailer maintaining sales locations in Louisiana, or is owned, in whole or in substantial part, by a retailer maintaining sales locations in Louisiana or by a parent or subsidiary thereof. For purposes of the legislation, "substantial ownership interest" means affiliated persons with respect to each other where one of such persons has an ownership interest of more than 5%, whether direct or indirect, in the other, or where an ownership interest of more than 5%, whether direct or indirect, is held in each of such persons by another person or by a group of other persons which are affiliated persons with respect to each other.

 

The click-through and affiliate nexus provisions for establishing a person as a dealer for sales and use tax purposes shall not be used in determining whether the person is liable for payment of Louisiana income and franchise taxes. If the U.S. Congress enacts legislation authorizing states to require a remote seller to collect sales and use taxes on taxable transactions, the federal law shall preempt the provisions of the Louisiana law. (Act 22 (H.B. 30), Laws 2016, First Extraordinary Session)

(03/24/2016)

On February 22, 2016, the U.S. Court of Appeals for the Tenth Circuit issued its opinion in Direct Marketing Association v. Brohl and reversed the district court’s order granting summary judgment. The Court of Appeals held that Colorado’s use tax reporting requirements legislation for out-of-state retailers did not violate the Commerce Clause because the reporting requirements neither discriminated against, nor unduly burdened, interstate commerce. Additionally, the Court of Appeals held that the application of Quill v. North Dakota is narrowly limited to sales and use tax collection. The court held that the law does not discriminate against interstate commerce because it imposes differential treatment based on whether the retailer collects Colorado sales or use taxes, not whether the vendor is located in-state or out-of-state. The court also considered whether the reporting requirements law unconstitutionally discriminated by favoring in-state economic interests over out-of-state interests. The court stated that the party claiming discrimination must show that the state law benefits local actors and burdens out-of-state actors, and the result must alter the competitive balance between in-state and out-of-state firms. The court noted that the reporting requirements for out-of-state sellers do not violate the Commerce Clause because Colorado customers are required to pay sales or use tax when they purchase goods from a collecting or non-collecting retailer. As a result, the reporting requirements do not give in-state sellers a competitive advantage. The court also noted that equal treatment requires that those similarly situated be treated alike. Out-of-state retailers and in-state retailers are not similarly situated because the in-state retailers are required to comply with tax collection and reporting requirements. It is expected that DMA will appeal the decision.  Questions that we will monitor include will Colorado continue its stay on the reporting requirement until a final decision, if Colorado is successful at the end of the process will it change the effective date to a current or prospective date or are companies at risk going back to 2010 when it was first enacted.  Many in the state tax community are expecting other states to introduce similar legislation in the current sessions – we’ll watch for these and bring them to your attention.

 

The reporting requirements legislation requires non-collecting retailers who make sales to Colorado purchasers but do not collect sales or use tax to file reports with the Colorado Department of Revenueas well as notify customers of their use tax obligation.  Retailers are also prohibited from indicating no tax is due.  Penalties will apply for failure to comply with both requirements.  Note that a “non-collecting retailer” does not include a retailer whose sales in Colorado are de minimis. For purposes of this regulation, the Department will presume that a retailer that makes less than $100,000 in total gross sales in Colorado in the prior calendar year and reasonably expects total gross sales in Colorado in the current calendar year will be less than $100,000 is a retailer whose sales in Colorado are de minimis.  In addition, a non collecting retailer does not include a retailer that makes sales solely by means of download of digital goods or software.

 

Non-collecting retailers must give notice to all Colorado purchasers that Colorado sales or use tax is due on all purchases that are not exempt from sales tax. This notice must be provided with respect to each transaction. A non-collecting retailer may not display or imply that no tax is due on any Colorado purchase (which includes an invoice line labeled Sales Tax with an amount of $0), unless such a display is accompanied by the required notice each time the display appears. The notice must contain the following information: The non-collecting retailer does not collect Colorado sales or use tax; The purchase is not exempt from Colorado sales or use tax merely because it is made over the Internet or by other remote means; and the State of Colorado requires that a Colorado purchaser (A) file a sales or use tax return at the end of the year reporting all of the taxable Colorado purchases that were not taxed and (B) pay tax on those purchases. This notice must be clearly legible, reasonably prominent, and located in close proximity to the total price. It will be sufficient if the non-collecting retailer provides a prominent linking notice that reads as follows: "See important sales tax information regarding the tax you may owe directly to your state", if such linking notice directs the Colorado purchaser to the principal required notice. The non-collecting retailer shall pay a penalty of $5 for each sale to a Colorado purchaser with respect to which the required notice does not appear. 

 

In addition,annual reports are required to be issued to Colorado customers as well as with the Department of Revenue.  These reports must include the following information: The name of each Colorado purchaser; The billing address of each Colorado purchaser, if the information was provided; The shipping address of each Colorado purchaser, if the information was provided; and the total dollar amount of Colorado purchases made by each Colorado purchaser during the prior calendar year. No other information about the purchase shall be provided. If the non-collecting retailer has more than one Colorado billing address or more than one Colorado shipping address for a Colorado purchaser, then the non-collecting retailer shall provide all such addresses of the Colorado purchaser. The notice must be sent by January 31st of each year summarizing purchases made for the prior calendar year. The notice must be sent by January 31st of each year summarizing purchases made for the prior calendar year. These notices have similar requirements as the issuance of Federal 1099 notices and must be followed.  The non-collecting retailer shall pay a penalty of $10 for each notice that is not sent by the non-collecting retailer to the Colorado purchaser.

 

UPDATE: On April 6, 2016, the U.S. Court of Appeals for the Tenth Circuit denied a petition for rehearing of the February 2016 ruling.

 

UPDATE: On August 29, 2016 the Direct Marketing Association filed a petition for review with the U.S. Supreme Court, asking it to overturn the April ruling by the U.S. Court of Appeals for the Tenth Circuit.

 

UPDATE: On December 12, 2016, the U.S. Supreme Court declined to review the ruling of the U.S. Court of Appeals for the Tenth Circuit that upholds Colorado’s use tax notice and reporting requirements. The Court also denied a cross-petition for certiorari filed by Colorado, which urged the Court to address whether the physical presence standard in Quill v. North Dakota should be overruled. Colorado is now free to enforce the use tax notice and reporting requirements legislation. This means that out-of-state sellers making sales into Colorado must notify in-state customers of their responsibility to remit use tax, and sellers must provide the Department with the required customer information. Failure to fulfill these obligations will result in a $10 per violation fine. Colorado has not yet indicated when the provisions will be deemed effective.  We will continue to monitor this and update as more information is made available.  In the meantime, all sellers who make sales into Colorado should prepare to comply with the notification and reporting requirements.  

 

For our previous news item on this case, see U.S. Supreme Court Rules that Federal Court has Jurisdiction Over Challenge to Colorado Reporting Requirements Law.

 

For an update on this news item, see Colorado Use Tax Notice and Reporting Requirements Become Effective July 1, 2017

 

(Direct Marketing Association v. Brohl, Case No. 12-1175 (10th Cir. Feb. 22, 2016); Direct Mktg. Ass'n v. Brohl, U.S., 15A1259, petition for certiorari review 8/29/16)

(12/20/2016)

An out-of-state wholesaler of vehicle chassis did not create nexus in Washington for business and occupation (B&O) tax purposes with respect to one type of chassis it sold because all chassis sold were delivered to body shops outside of Washington to be incorporated into vehicles that were then delivered by the body shops to dealers in Washington. According to the sample sales invoices provided by the wholesaler, all of the chassis were received outside of Washington. Accordingly, the sales of the chassis occurred outside Washington and were, therefore, not subject to Washington B&O tax.  However, the wholesalerdid create nexus in Washington with respect to another type of chassis it sold because warranty services were offered by the wholesaler through a third-party in Washington.Rule 193(102)(d)(vii)(B) expressly includes “[b]eing available to provide services associated with the product sold (such as warranty repairs, installation assistance or guidance, and training on the use of the product), if the availability of such services is referenced by the seller in its marketing materials, communications, or other information accessible to customers” as an activity establishes nexus. The wholesaler and affiliates shared the same web site and there was no distinction between them in terms of offering of products and services.  (Determination No. 15-0279, Washington Department of Revenue, January 31, 2016)

(02/23/2016)

The Washington Department of Revenue has announced that nexus continues for the remainder of the calendar year and the following calendar year for all taxes reported on the excise tax return which includes retail sales tax and business & occupation tax when either the nexus standard for (a) apportionable activities and for sales subject to wholesaling business and occupation (B&O) tax or (b) other business activities, is met  The one-year trailing nexus is effective as of June 1, 2010.(Special Notice, Washington Department of Revenue, February 2, 2016)

(02/23/2016)

Pages

Scroll to Top