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On October 18, 2013, the Illinois Supreme Court ruled 6-1 that the state's click-through nexus law is pre-empted by federal law.  This decision upholds lower court rulings in favor of Performance Marketing Association. The Illinois Supreme Court specifically found that the click-through nexus law is pre-empted by the Internet Tax Freedom Act (Click here for more information on the Internet Tax Freedom Act).  For previous news items on this topic, click here and here.

 

UPDATE: Due to law changes, new click-through provisions are now effective. For additional information, see Illinois Enacts Click-Through Nexus Legislation.

 

(Performance Marketing Ass’n, Inc. v. Hamer, Illinois Supreme Court, No. 114496, October 18, 2013)

 

(11/26/2013)

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)

The Illinois Department of Revenue ruled that an out-of-state retailer was maintaining a place of business in Illinois and was required to collect and remit use tax from its Illinois customers. A retailer is considered to maintain a place of business in Illinois if it has an agent or other representative operating in Illinois under its authority. To meet the requirement, the place of business or agent or other representative may be located in Illinois temporarily or permanently. The retailer had sales representatives that regularly appeared at trade shows in Illinois to take orders for the retailer’s products.  The retailer claimed that the products were sold by independent contractors, not agents, and that the contractors worked on consignment but did not provide proof to back up the claim. Notices of tax liability issued by the department were valid because they were issued before the applicable statute of limitations had run. If a taxpayer fails to file a use tax return, as in this case, the applicable statute of limitations is six years. The department issued the notices of tax liability within six years of the date the retailer incurred the liabilities.  The retailer did not show that the three-year statute of limitations, applicable if a use tax return is filed, applied. (Administrative Hearing Decision No. UT 13-01, Illinois Department of Revenue, January 24, 2013)

(03/26/2013)

In the lawsuit filed by the Performance Marketing Association (PMA) claiming Illinois P.A. 96-1544 which was effective July 1, 2011 is unconstitutional, an Illinois judge ruled in favor of the PMA in their court case challenging the Illinois click-through nexus law pertaining to sales and use tax. The judge ruled that the law violates the Commerce Clause of the U.S. Constitution and that the activity described in the statute does not establish nexus. The judge ruled that the statute is premature, given the Congressional moratorium related to internet tax fairness. For more information regarding the Illinois statute regarding Affiliate and Click Through Nexus see our prior news item. For an update to this news item, click here. (Performance Marketing Association, Inc. v. Hamer, Director, Illinois Department of Revenue, Circuit Court of Cook County, Illinois County Department, Law Division, 2011 CH 26333, May 7, 2012)

(05/16/2012)

Illinois Governor Pat Quinn signed a “click-through nexus” bill into legislation on March 10, 2011. The bill will treat some out-of-state sellers as maintaining a place of business in Illinois, making them responsible for collecting use or service use tax on goods or services sold for use in Illinois. Effective July 1, 2011, a retailer or serviceman will be considered to be maintaining a place of business in Illinois for purposes of collecting use or service use tax for one of two reasons. If the retailer or serviceman has a contract with an individual located in Illinois who directly or indirectly refers potential customers to the retailer through a link on their website for a commission or other consideration on the sale of tangible personal property or a service, the retailer will be considered to maintain a place of business in Illinois. The same will apply if the retailer or serviceman has a contract with an individual in Illinois under which the retailer or serviceman sells the same or substantially similar products or services and does so using an identical or substantially similar name, trade name, or trademark. If the retailer or serviceman provides the individual in Illinois a commission or other consideration based on the sale of tangible personal property or a service, they will be considered to maintain a place of business in Illinois and will need to collect use tax on the items or services sold. Under either situation, the retailer or serviceman will be considered an Illinois retailer only if the cumulative gross receipts from sales of tangible personal property or services under the contract exceed $10,000 during the preceding four quarterly periods ending on the last day of March, June, September, and December. The signing of the bill means that Amazon.com would be required to collect sales tax on purchases made by Illinois residents. Amazon has said that it will avoid having to collect and remit sales tax by dropping affiliations with Illinois website companies that direct traffic to Amazon.com. On January 9, 2011, the Illinois Senate introduced a bill that would repeal the expanded nexus definition that the governor just signed into law. This bill for the purposes of use tax and service use tax would expand the definition of an Illinois retailer or serviceman and provide that a website link is not enough to qualify as maintaining a place of business in Illinois. Under this bill, effective July 1, 2011, the definition of a retailer or serviceman maintaining a place of business in Illinois for use tax and service use tax purposes would expand to include any retailer or serviceman having a representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in Illinois for the purpose of selling, delivering, installing, assembling, or taking any orders for tangible personal property. An advertising or affiliate marketing link on a website would not qualify the retailer or serviceman as maintaining a place of business in Illinois for purposes of collecting use tax or service use tax. Based on the signing of P.A. 96-1544, it is uncertain whether this bill will pass and be signed by the governor. For updates to this news item, click here and here. (P.A. 96-1544 (H.B. 3659), Laws 2011, effective March 10, 2011; S.B. 1783, as introduced in the Illinois Senate on January 9, 2011)

(03/11/2011)

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