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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)

Tennessee Governor Bill Haslam signed legislation codifying the terms of an agreement between the state and Amazon. Under the agreement, Amazon has agreed to begin collecting and remitting Tennessee sales and use tax beginning in 2014. Although this bill was geared towards the agreement with Amazon, the exclusion from tax collection responsibilities will apply to any other business that meets the requirements under the legislation. The bill states that the activities of distribution facilities operated by a company’s affiliates in Tennessee are not considered in determining whether a company has a physical presence establishing nexus in the state. This exclusion does not apply to affiliates that operate a retail store or kiosk at which customers make purchases, return or exchange items or place orders for tangible personal property; or use personnel to solicit sales of tangible personal property, either by direct employment or on a contract basis. The agreement will only apply to a person that has an affiliate that places one or more distribution facilities in service, directly or through a third party, after January 1, 2011 and before January 1, 2014; makes, or causes to be made, through a third party, a capital investment of at least $350 million after January 1, 2011 and before January 1, 2014; creates at least 3,500 qualified jobs after January 1, 2011 and before January 1, 2014; and maintains at least 3,500 qualified jobs until January 1, 2016. The provisions in the bill will be repealed on the earliest of the following: January 1, 2014; upon an affiliate’s failure to satisfy the above investment or job creation requirements; or the effective date of any federal legislation authorizing the state to require remote sellers to collect and remit tax. The provisions in the bill only apply if the person enters a written agreement pursuant to which the person and its affiliates will collect Tennessee sales and use tax beginning immediately after the earliest of the events described above.

In exchange for the exclusion from tax collection, a reporting requirement is imposed on any qualifying retailer. This provisions requires any retailer that does not establish nexus with Tennessee pursuant to the above provisions and that makes sales to Tennessee purchasers to notify the purchaser in a confirmation email that the purchaser may owe Tennessee use tax on the total sales price of the transaction and include in the email an internet link to the Department of Revenue’s website that allows the purchaser to pay the use tax. The notice must include language that is substantially similar to wording provided in the bill. Any person who becomes subject to these requirements will have 60 days to comply with the requirements. The person must also provide to each purchaser a statement of the total sales made to the purchaser during the preceding calendar year. The person shall provide notice for calendar year 2011 within 60 days after the effective date of the act and by February 1 of each subsequent year. “Total sales” means the total purchase price of all sales of tangible personal property delivered in Tennessee, including shipping and delivery charges. The statement must include language that is substantially similar to wording provided in the bill. The statement must not contain any other information that would indicate, imply, or identify other details of the items purchased, which is considered confidential information. The statement may be provided by mail or email. (H.B. 2370, Laws 2012, effective March 26, 2012)

(04/23/2012)

The activities of schools and teachers in Tennessee are sufficient to create sales and use tax nexus for a mail-order bookseller that sells books through marketing materials distributed in schools. Reversing the lower court’s awarding of summary judgment to dismiss the case on behalf of Scholastic Books, a Tennessee Court of Appeals found that the bookseller’s contact with Tennessee customers is not merely mail-order. The bookseller is using Tennessee schools and teachers to facilitate sales of books. The bookseller sends marketing materials and order forms to schools. Teachers then distribute the materials to students, collect orders and payment, and submit the orders and payment to the bookseller. The court stated that the issue in this case is not whether Tennessee teachers are considered agents of the bookseller. Rather, the issue is whether substantial business activities have been carried out on the bookseller’s behalf in Tennessee, thus creating nexus. The bookseller’s connections with the state are sufficient to create nexus because the bookseller has created a de facto marketing and distribution mechanism within Tennessee schools in order to sell books. The bookseller asserted that it uses no public services in Tennessee, but the state’s schools and teachers are largely funded by taxpayer dollars.

On June 25, 2012, the Tennessee Supreme Court denied review of the bookseller’s application for discretionary review in this case. On September 20, 2012, the bookseller asked the U.S. Supreme Court to review the decision.  (Scholastic Book Clubs, Inc. v. Farr, Tennessee Court of Appeals, No. M2011-01443-COA-R3-CV, January 27, 2012; Scholastic Book Clubs, Inc. v. Commissioner of Revenue Services, U.S. S.Crt. No. 18425 (June 26, 2012); Scholastic Book Clubs, Inc. v. Roberts, U.S. Supreme Court, Dkt. 12-374, petition for certiorari filed September 2012)

(10/31/2012)

The Tennessee Attorney General has issued an opinion stating that a retailer that directly maintains or owns a warehouse or distribution facility in Tennessee has nexus in the state for Commerce Clause purposes. If a subsidiary of the retailer owns the in-state facility, nexus is only established for the retailer if the subsidiary’s in-state activities are significantly associated with the retailer’s ability to establish and maintain a market in Tennessee for its sales. When nexus is established, the out-of-state retailer is liable to collect and remit sales tax in Tennessee, whether or not the order is received electronically. (Opinion 11-71, Tennessee Attorney General, October 3, 2011)

(10/24/2011)

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