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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)


A Florida statute that imposes a sales and use tax on florists did not violate the Commerce Clause of the U.S. Constitution as applied to online sales of flowers, gift baskets, and other tangible personal property. Additionally, the statute did not violate the Due Process Clause since the taxpayer’s activities created substantial nexus in Florida. The taxpayer did not maintain any inventory of flowers, gift baskets, and other items of tangible personal property for its online sales, but would instead use local florists to fill the orders. The taxpayer charged sales tax on flowers and other items delivered in Florida by local florists, but it did not charge sales tax on flowers and other items delivered outside Florida. The relevant statute provides that florists located in Florida are liable for sales tax on sales to retail customers regardless of where or by whom the items are to be delivered. It also states that Florida florists are not liable for sales tax on payments received from other florists for items delivered to Florida customers. This is a common statute specific to florists across the states.  An Appellate Court held that imposing taxes on sales to out-of-state customers for out-of-state flower and gift deliveries violated the Commerce Clause, and accordingly, the tax was unconstitutional as applied to those sales.


The Florida Supreme Court held that the relevant statute does not violate the Commerce Clause as applied to the taxpayer’s online sales. The taxpayer had more than a slight presence in Florida. Its economic activities and transactions occurred at its principal place of business in Florida, where online orders were taken. The taxpayer had been doing business in Florida since 2001. As a result, the taxpayer’s activities created substantial nexus in Florida. The taxpayer argued that Florida sales tax should not apply since the taxpayer was being taxed on out-of-state sales that were not consummated until delivery took place out of state. The Florida Department of Revenue responded that it was the transactions that occurred in Florida that were being taxed, and that the transactions occurred in Florida where the taxpayer facilitated every stage of the transaction. The statute taxes the transaction that occurs in Florida, not the items sold or the activities that occur out of state. The tax did not discriminate against interstate commerce nor provide a direct commercial advantage to local business. The statute contains no provision that affords preferential treatment or commercial advantage to a Florida business over an out-of-state business. The court also held that the tax was fairly related to the services provided by Florida and that there was a reasonable relationship between the taxpayer’s presence and activities in Florida and the tax at issue. As a result, the statute did not violate the dormant Commerce Clause.


Additionally, the statute did not violate the Due Process Clause. Due process requires that there be some minimal connection between the state and the transaction it seeks to tax. The taxpayer has a physical presence and does business within Florida, and its activities create substantial nexus in Florida. (Florida Department of Revenue v. American Business USA Corp., Florida Supreme Court, No. SC14-2404, May 26, 2016)


UPDATE: On February 21, 2017, the U.S. Supreme Court denied a request to review the Florida Supreme Court’s decision that upheld the state’s imposition of sales and use tax on online florist sales. Therefore, the Florida Supreme Court decision stands and the provisions related to the taxation of florist sales is constitutional. (American Business USA Corp. v. Florida Department of Revenue, U.S. Supreme Court, Dkt. 16-567, petition for certiorari denied February 21, 2017)


Effective May 25, 2016, the Hawaii Department of Taxation (DOT) has updated its voluntary disclosure process, which allows taxpayers to voluntarily disclose any liability for all Hawaii taxes. Given the broad nexus and taxability provisions under the Hawaii General Excise Tax (GET) structure, this tax could apply to companies with minimal activities in Hawaii.  It is recommended that any business with customers in Hawaii evaluate their potential liability for this tax.  In return for a voluntary disclosure, penalties and partial interest may be waived and taxpayers may avoid criminal tax investigation, as well as a civil audit, assessment, and collection. The DOT will consider a voluntary disclosure when a taxpayer fully cooperates in determining their state tax liability. All relevant circumstances must be disclosed truthfully, accurately, and completely. Any misrepresentation by the taxpayer will cease further consideration of the disclosure. Final acceptance of any voluntary disclosure is at the discretion of the DOT. The DOT states that the look-back period for a voluntary disclosure generally will be limited to ten years. However, in certain situations the DOT may look back more than ten years. For taxpayers filing through the Multistate Tax Commission Voluntary Disclosure Program, the DOT states that it will honor the look-back period of such an agreement. (Tax Information Release No. 2016-02, Hawaii Department of Taxation, May 25, 2016)


Vermont Gov. Peter Shumlin has signed legislation containing sales and use tax notice and reporting requirements and economic nexus provisions. The notice and reporting requirements are more stringent than the provisions enacted in 2011 which only required posting information on order sites and information.  The new legislation requires non-collecting vendors making sales into Vermont to notify purchasers that sales or use tax is due on nonexempt purchases they make from the vendor and that Vermont requires the purchaser to file a sales or use tax return. "Noncollecting vendor" is defined as a vendor that sells tangible personal property to purchasers who are not exempt from Vermont sales tax and that does not collect the tax. The notice must be provided by January 31 of each year to Vermont purchasers who have made purchases amounting to $500 or more from the vendor in the previous calendar year. The notice must include the total amount paid by the purchaser for Vermont purchases made from the vendor in the previous calendar year. The notice must also state that Vermont requires a sales or use tax return to be filed and tax to be paid on nonexempt purchases made by the purchaser from the vendor. The notice must be sent separately to all Vermont purchasers by first-class mail or email and must not be included with any other shipments. The notice must include the words "Important Tax Document Enclosed" on the mailer and must include the name of the vendor. Failure to send the notice will subject the vendor to a $10 penalty for each such failure, unless the vendor shows reasonable cause for the failure. These notice and reporting requirements provision is effective on the earlier of July 1, 2017, or beginning on the first day of the first quarter after the sales and use tax reporting requirements challenged in Direct Marketing Assoc. v. Brohl are implemented by the state of Colorado. For more information on the Colorado case, see our news item U.S. Court of Appeals Upholds Colorado’s Use Tax Reporting Requirements.


In addition to the click through nexus legislation that was originally passed in 2011 and effective December 1, 2015, economic nexus legislation has now also been enacted.  Per the enacted legislation, a remote seller making sales of tangible personal property from outside Vermont to a destination in Vermont, who does not maintain a place of business or other physical presence in Vermont, meets the definition of "vendor" required to collect and remit Vermont sales or use tax if the person:

  • engages in regular, systematic, or seasonal solicitation of sales of tangible personal property in Vermont through various means of communication, and
  • has made sales from outside Vermont to destinations in Vermont of at least $100,000 or totaling at least 200 individual sales transactions during any 12-month period preceding the monthly period at issue. Previously, the threshold was sales from outside Vermont to destinations in Vermont of at least $50,000 during any 12-month period preceding the monthly or quarterly period at issue.


The changes to the economic nexus thresholds are effective on the later of July 1, 2017, or beginning on the first day of the first quarter after a controlling court decision or federal legislation abrogates the physical presence requirement of Quill Corp. v. North Dakota, 504 U.S. 298 (1992). (H.B. 873, Laws 2016, effective May 25, 2016, except as noted)


For an update on this news item, see Vermont Enacts Additional Notice Requirement for Noncollecting Vendors.


Oklahoma Gov. Mary Fallin signed legislation enacting the Oklahoma Retail Protection Act of 2016, which includes affiliate nexus and reporting requirements provisions. This new Act modifies legislation originally passed in 2010 which included affiliate nexus and reporting rules.


The changes contained in the new legislation take effect on November 1, 2016. The legislation amends the definition of "maintaining a place of business in this state" to include utilizing or maintaining in Oklahoma (directly or by subsidiary) an office, distribution house, sales house, warehouse, or other physical place of business, whether owned or operated by the vendor or any other person (other than a common carrier), or having agents operating in Oklahoma, whether the place of business or agent is within the state temporarily or permanently or whether the person or agent is authorized to do business in the state; and the presence of any person (other than a common carrier) who has substantial nexus in Oklahoma and who:


  • sells a similar line of products as the vendor under the same or a similar business name;
  • uses trademarks, service marks, or trade names in Oklahoma that are the same or substantially similar to those used by the vendor;
  • delivers, installs, assembles, or performs maintenance services for the vendor;
  • facilitates the vendor's delivery of property to customers in the state by permitting the vendor's customers to pick up property sold by the vendor at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Oklahoma; or
  • conducts any other activities in Oklahoma that are significantly associated with the vendor's ability to establish and maintain a market in the state for the vendor's sale.


The nexus presumption is rebuttable by showing that the person's activities in Oklahoma are not significantly associated with the vendor's ability to establish and maintain a market in the state for the vendor's sales. Finally, any ruling, agreement, or contract between a person and the executive branch of Oklahoma, or any other state agency or department, that states, agrees, or rules that the person is not "maintaining a place of business in this state" or is not required to collect sales and use tax in Oklahoma despite the presence of a warehouse, distribution center, or fulfillment center in the state that is owned or operated by the vendor or an affiliated person of the vendor, is null and void unless specifically approved by a majority vote of each house of the Oklahoma Legislature.


The legislation also removes the following affiliate nexus criteria which existed in the 2010 legislation from the use tax code:


  • the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a retailer maintaining a place of business within the state and the retailer sells the same or a substantially similar line of products as the related Oklahoma retailer and does so under the same or a substantially similar business name, or the Oklahoma facilities or Oklahoma employees of the related Oklahoma retailer are used to advertise, promote or facilitate sales by the retailer to consumers;
  • the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a business that maintains a distribution house, sales house, warehouse or similar place of business in Oklahoma that delivers property sold by the retailer to consumers; or
  • a retailer is part of a "controlled group of corporations" having a "component member" that is a retailer engaged in business in Oklahoma.


The use tax code is also amended to no longer provide that a "retailer" includes making sales of tangible personal property to purchasers in Oklahoma by mail, telephone, the Internet, or other media who has contracted with an entity to provide and perform installation or maintenance services for the retailer's purchasers in Oklahoma. The use tax code is also amended to no longer state that the processing of orders electronically does not relieve a retailer of the duty to collect tax from the purchaser if the retailer is doing business in Oklahoma.


To incent remote sellers to register to collect Oklahoma use tax, the legislation expands the state’s out-of-state retailer use tax registration, collection, and remittance compliance initiatives to also apply to sales tax. Under the amended initiative, the state will not seek payment of uncollected use taxes from an out-of-state retailer who registers to collect and remit applicable sales and use taxes on sales made to purchasers in Oklahoma prior to registration under the initiative, provided that the retailer was not registered in Oklahoma in the 12-month period preceding November 1, 2016. Other changes concerning the compliance initiatives include the removal of provisions:


  • prohibiting an out-of-state retailer’s registration to collect use tax under the initiative as a factor in determining nexus for other Oklahoma taxes,
  • allowing out-of-state retailers registering under the initiative a vendor discount for timely reporting and remittance of use tax, and
  • prohibiting the charging of a registration fee against an out-of-state retailer who voluntarily registers to collect and remit use tax under the initiative.


The legislation precludes assessments for uncollected sales and use taxes (including penalties and interest) for sales made during the period a retailer was not registered in Oklahoma, so long as registration occurs before May 1, 2017. This provision could be beneficial for companies with questionable or actual nexus in Oklahoma as this appears to be a full forgiveness amnesty for prior periods.


The Oklahoma Tax Commission will implement an outreach program under which online retailers and out-of-state retailers will be contacted for a review of their business activities to determine if their activities require the registration and collection of Oklahoma use taxes.


Changes to the 2010 reporting and notice requirements are also included in the new legislation.  Out-of-state retailers who are not required to collect Oklahoma use tax and who make sales of tangible personal property to Oklahoma customers for use in the state, must, by February 1st of each year, provide each of these customers a statement of the total sales made to them during the preceding calendar year. The statement must contain language substantially similar to: "You may owe Oklahoma use tax on purchases you made from us during the previous tax year. The amount of tax you owe is based on the total sales price of [insert total sales price] that must be reported and paid when you file your Oklahoma income tax return unless you have already paid the tax."The statement cannot contain any other information that would indicate, imply, or identify the class, type, description, or name of the products sold. The 2010 legislation had a sales threshold which no longer applies.  (H.B. 2531, Laws 2016)







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