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The Multistate Tax Commission (MTC) has announced a sales/use tax and income/franchise tax amnesty program for online sellers that will run from August 17 to November 1, 2017 (previously October 17, 2017). Qualified online sellers with potential tax liability may be able to use the MTC's voluntary disclosure agreement (VDA) to negotiate a settlement during the amnesty period if they meet certain eligibility requirements. Taxpayers that have not been contacted by any of the states participating in the amnesty program will be able to apply to start remitting sales tax on future sales without penalty or liability for unpaid, prior accumulated sales tax in the participating states. 25 MTC member states have agreed to participate in the amnesty program. The participating states include: 

 

  • Alabama
  • Arkansas
  • Colorado (sales/use tax only)
  • Connecticut
  • District of Columbia (may not waive all prior periods)
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts (special provisions apply)
  • Minnesota (special provisions apply)
  • Missouri
  • Nebraska (may not waive all prior periods)
  • New Jersey
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas 
  • Utah
  • Vermont
  • Wisconsin (will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax)

 

Some of the additional states may require a limited look-back period for prior tax liabilities. Sellers who wish to participate in the program will need to file the voluntary disclosure program paperwork during the program dates. The MTC will route the paperwork for each participating state for which the seller is seeking amnesty protection. For more details visit the MTC website.

 

UPDATE: The Multistate Tax Commission's online seller amnesty program is now over. If you didn't take advantage of this program but realize you need to evaluate your activities, you can contact us here.

(11/07/2017)

On June 12, 2017, Rep. Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goodlatte (R-VA) introduced the No Regulation Without Representation Act of 2017. A previous version of this bill had been introduced in 2016 and failed to pass. Under the proposed bill, a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed. Under the proposed bill, the physical presencerequirement would apply to sales and use taxand net income and other business activities taxes, as well as the states’ ability to regulateinterstate commerce. “Physical presence” in a state includes:

 

  • maintaining a commercial or legal domicile in the state;
  • owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the state;
  • leasing or owning tangible personal property (other than computer software) of more than de minimis value in the state;
  • having one or more employees, agents or independent contractors present in the state who provide on-site design, installation, or repair services on behalf of the remote seller;
  • having one or more employees, exclusive agents or exclusive independent contractors present in the state who engage in activities that substantially assist the person to establish or maintain a market in the state; or
  • regularly employing in the state three or more employees for any purpose.

 

“Physical presence” in a state would not include:

 

  • entering into an agreement under which a person, for a commission or other consideration, directly or indirectly refers potential purchasers to a person outside the state, whether by an Internet-based link or platform, Internet Web site or otherwise;
  • any presence in a state for less than 15 days in a taxable year (or a greater number of days if provided by state law);
  • product placement, setup or other services offered in connection with delivery of products by an interstate or in-state carrier or other service provider;
  • Internet advertising services provided by in-state residents which are not exclusively directed towards, or do not solicit exclusively, in-state customers;
  • ownership by a person outside the state of an interest in a limited liability company or similar entity organized or with a physical presence in the state;
  • the furnishing of information to customers or affiliates in such state, or the coverage of events or other gathering of information in such state by such person, or his representative, which information is used or disseminated from a point outside the state; or
  • business activities directly relating to such person's potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the state.

 

In addition, the bill prohibits the imposition or assessment of a sales, use or other similar tax or a reporting requirement unless the purchaser or seller has physical presence in the state.  This would prohibit all the remote seller legislation (click through, affiliate, economic, marketplace and reporting/notification). If enacted, the legislation would apply with respect to calendar quarters beginning on or after January 1, 2018. (No Regulation Without Representation Act of 2017)

(07/12/2017)

Effective July 1, 2017, Indiana has enacted economic nexus legislation affecting remote sellers. Sellers that do not have a physical presence in Indiana will be required to collect and remit Indiana sales tax and comply with the procedures and requirements of Indiana’s sales tax laws if the seller meets either of the following criteria for the calendar year in which the retail transaction is made or for the calendar year preceding the calendar year in which the retail transaction is made:

 

  • The seller’s gross revenue from any combination of sales of tangible personal property delivered into Indiana, a product transferred electronically into Indiana, or a service delivered in Indiana exceeds $100,000; or
  • The seller sells any combination of tangible personal property delivered into Indiana, a product transferred electronically into Indiana, or a service delivered in Indiana in 200 or more separate transactions. 

 

The Indiana Department of Revenue may bring a declaratory judgment action against a remote seller to establish that the person has an obligation to collect Indiana sales tax and that the person’s obligation to collect Indiana sales tax is valid under state and federal law. The department and other state agencies and state entities may not, during the pendency of the declaratory judgment action - including any appeals from a judgment in the declaratory judgment action - enforce the obligation to collect Indiana sales tax against any person that does not affirmatively consent or otherwise remit the sales tax on a voluntary basis. The latter does not apply to a person if there is a previous judgment from a court establishing the validity of the obligation to collect state gross retail tax with respect to that person.

 

Included in the statute is an explanation for the enactment of the remote seller collection provisions with a plea to the U.S. Supreme Court to reconsider its doctrine that prevents states from requiring remote sellers to collect the tax.  It also claims that the non collection of the tax by remote sellers causes significant harm to the state of Indiana. (H.B. 1129, Laws 2017, effective July 1, 2017)

 

UPDATE: On June 30, 2017, the trade associations American Catalog Mailers Association and NetChoice filed a lawsuit challenging the constitutionality of Indiana’s economic nexus legislation. The American Catalog Mailers Association and NetChoice are challenging the legislation as being in violation of the Commerce Clause of the U.S. Constitution as interpreted by the Supreme Court in Quill v. North Dakota. The trade associations made attempts to convince Indiana to suspend enforcement of the provision pending the decision in the South Dakota case on economic nexus but the state has not responded.  The statute included provisions that prohibit the state from enforcing the obligation to collect Indiana sales tax against any person that does not affirmatively consent or otherwise remit the sales tax on a voluntary basis during the pendency of the declaratory judgment action - including any appeals from a judgment in the declaratory judgment action.  We recommend that no company voluntarily elect to collect if their only presence in the state is under these economic nexus provisions. We will continue to monitor for developments. (American Catalog Mailers Association and NetChoice v. Adam Krupp, in his official capacity as the Commissioner of the Indiana Department of Revenue, Eric Holcomb, in his official capacity as the Governor of the State of Indiana, and Indiana Department of Revenue)

(05/09/2017)

On April 27, 2017, a bipartisan group of senators introduced the Marketplace Fairness Act of 2017 (MFA). Similar legislation was introduced in both 2013 and 2015 and failed to be enacted both times. If enacted, the legislation would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. The small seller exception is set again at $1 million of remote sales annually. The only other significant change from the 2015 version is a prohibition of making the effective date during the 4th quarter of the calendar year. For information on the previous versions of the bill, visit Senate Introduces Marketplace Fairness Act of 2015.  

 

On April 27, 2017, a bipartisan group of lawmakers introduced the Remote Transactions Parity Act (RTPA) of 2017. Similar legislation was introduced in 2015 but failed to be enacted. Like the MFA, the legislation would also create sales and use tax collection obligations for remote sellers, but has some differences and additional provisions. Some key differences from the Marketplace Fairness Act include a different definition of a small seller.  The RTPA has a phased in threshold starting at $10million in year one, then $5million, then $1million.  In year 4, there is no threshold.  In addition to the monetary thresholds, any seller that sells on an electronic marketplace is considered a small seller.  A difference from the 2015 version of the bill is an inclusion of a definition of remote seller which specifies when a company is NOT a remote seller which includes physical presences for more than 15 days in a state, leasing or owning real property and using an agent to establish or maintain the market in a state if the agent does not perform business services in the state for any other person during the taxable year.  For more information on the Remote Transaction Parity Act of 2015, visit House Introduces Remote Transactions Parity Act of 2015. (Marketplace Fairness Act of 2017, Remote Transactions Parity Act of 2017)

(05/04/2017)

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)

(09/08/2016)

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