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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)

Amazon has entered into an agreement with the state of Texas to begin collecting and remitting Texas sales tax on July 1, 2012. Under the agreement, Amazon plans over the next four years to create at least 2,500 jobs and make at least $200 million in capital investments in Texas. The agreement resolves all sales tax issues between Amazon and the state. Both Amazon and the state showed support for the enactment of federal legislation to resolve the tax collection issue on a national level. Click here to see our previous news item on Texas's affiliate nexus bill. (News Release, Texas Comptroller of Public Accounts, April 27, 2012)

(05/21/2012)

On July 19, 2011, Texas Governor Rick Perry signed a fiscal matters bill that includes affiliate nexus provisions for remote sellers. Effective January 1, 2012, the definition of a retailer considered to be engaged in business in Texas for use tax collection purposes is expanded. A retailer is engaged in business in Texas if the retailer holds a substantial ownership interest in, or is owned in whole or substantial part by, a person who maintains a location in Texas from which business is conducted and if the retailer sells the same or a substantially similar line of products as the in-state person and sells those products under a business name that is the same or substantially similar; or the facilities or employees of the in-state person are used to advertise, promote, or facilitate sales by the retailer to consumers or perform any other activity on behalf of the retailer intended to establish or maintain a marketplace for the retailer in Texas, including receiving or exchanging returned merchandise. Additionally, a retailer is engaged in business in Texas if the retailer holds a substantial ownership interest in, or is owned in whole or substantial part by, a person who maintains a distribution center, warehouse, or similar location in Texas and who delivers property sold by the retailer to consumers. In addition, the definition of “seller” and “retailer” is expanded to include a person who has been entrusted with the possession of property and has the power to sell, lease, or rent the property without further action by the owner. Click here for an update on Amazon's agreement to collect sales tax in Texas. (S.B. 1, Laws 2011, First Special Session, effective September 28, 2011, except as noted)

(05/20/2012)

By attending trade shows in Texas to introduce and demonstrate dental equipment for the purpose of selling them in Texas, an out-of-state seller had the required physical presence in Texas to establish substantial nexus with the state. As a result, the taxpayer was required to collect Texas use tax on sales to Texas purchasers even if orders were received and filled outside Texas. Federal law prohibits states from imposing income tax on a taxpayer whose only contacts with a state are solicitation of sales of tangible personal property if the orders are processed and filled out of state and if the property is delivered by a common carrier; however, the prohibition does not apply to a transaction tax, such as sales and use taxes. (Decision, Hearing No. 46,628, Texas Comptroller of Public Accounts)

(04/26/2007)

Texas Court of Appeals recently upheld a decision that Alpine Industries, Inc. was a direct sales organization and was responsible for collecting and remitting sales and use tax instead of its independent dealers. Under Texas law the Comptroller can treat a company as the retailer instead of its sales staff, if this will allow for more efficient collection and remittance of sales and use tax. Alpine Industries, Inc. challenged the court’s position citing conflicts with the commerce clause, due process, and equal protection. However, the court ultimately found that its position did not violate any issue raised by Alpine Industries, Inc. (Texas Court of Appeals (Third) At Austin, Alpine Industries, Inc. v. Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas and Greg Abbot, Attorney General of the State of Texas, Docket No. 98-12998, July 15, 2004.)

(08/05/2004)

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