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On July 14, 2016, Rep. Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016.  Taking the opposite approach of the Marketplace Fairness Act and Remote Transactions Parity Act, this proposed bill would limit the ability of states to require remote sellers to collect use tax. If enacted, the Act would codify the physical presence requirement established by the US Supreme Court in Quill Corp v. North Dakota.  The bill would define physical presence and create a de minimis threshold. If enacted, the bill would preempt click-through nexus, affiliate nexus, reporting requirements and marketplace nexus legislation. The bill would be effective as of January 1, 2017. The bill defines “seller” and provides that states and localities may not:

 

  • Obligate a person to collect a sales, use or similar tax; 
  • Obligate a person to report sales; 
  • Assess a tax on a person; or 
  • Treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.

 

Persons would be considered to have a physical presence only if during the calendar year the person: 

 

  • Owns or leases real or tangible personal property in the state; 
  • Has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or 
  • Maintains an office in-state with three or more employees for any purpose.

 

Physical presence would not include: 

 

  • Click-through referral agreements with in-state persons who receive commissions for referring customers to the seller; 
  • Presence for less than 15 days in a taxable year; 
  • Product delivery provided by a common carrier; or 
  • Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.

 

The bill defines seller to exclude marketplace providers; referrers; third-party delivery services in which the seller does not have an ownership interest; and credit card issuers, transaction or billing processors or financial intermediaries.Marketplace Providers are defined as any person other than the seller who facilitates a sale which includes listing or advertising the items or services for sale and either directly or indirectly collects gross receipts from the customer and transmits the amounts to the marketplace seller. (No Regulation Without Representation Act of 2016 (H.R. 5893))

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(08/23/2016)

An out-of-state retailer that sold nutritional supplements in Washington was liable for sales tax and B&O tax because it had substantial nexus with Washington. The company made wholesale sales to retailers and distributors and retail sales through infomercials. Employees of the company traveled to Washington to participate in trade shows, sales staff training, and promotional planningto support its wholesale sales. The company engaged marketing firms to assist in marketing its products in Washington. The marketing firms solicited sales from the taxpayer’s wholesale customers, received orders, and acted as intermediaries with retailers on promotional programs. The taxpayer asserted that the Commerce Clause prohibited Washington from subjecting the retail sales to sales tax. However, due to the company’s substantial physical presence in Washington, the Commerce Clause did not preclude taxation. Regarding liability for B&O tax, the company had substantial nexus because its in-state activities supported its abilities to establish and maintain a market for its goods in Washington. There is no requirement that the activities that create the nexus with the state be connected to specific sales. The company’s wholesale sales and marketing apparatus allowed it to obtain information on Washington’s nutritional products market. Additionally, its wholesale activities created a market for its retail sales, since its sales at grocery and drug stores resulted in phone inquiries from individuals. (Irwin Naturals v. Department of Revenue, The Court of Appeals of Washington, Division One, No. 73966-2-I, July 25, 2016)

(08/23/2016)

An out-of-state wholesaler of vehicle chassis did not create nexus in Washington for business and occupation (B&O) tax purposes with respect to one type of chassis it sold because all chassis sold were delivered to body shops outside of Washington to be incorporated into vehicles that were then delivered by the body shops to dealers in Washington. According to the sample sales invoices provided by the wholesaler, all of the chassis were received outside of Washington. Accordingly, the sales of the chassis occurred outside Washington and were, therefore, not subject to Washington B&O tax.  However, the wholesalerdid create nexus in Washington with respect to another type of chassis it sold because warranty services were offered by the wholesaler through a third-party in Washington.Rule 193(102)(d)(vii)(B) expressly includes “[b]eing available to provide services associated with the product sold (such as warranty repairs, installation assistance or guidance, and training on the use of the product), if the availability of such services is referenced by the seller in its marketing materials, communications, or other information accessible to customers” as an activity establishes nexus. The wholesaler and affiliates shared the same web site and there was no distinction between them in terms of offering of products and services.  (Determination No. 15-0279, Washington Department of Revenue, January 31, 2016)

(02/23/2016)

The Washington Department of Revenue has announced that nexus continues for the remainder of the calendar year and the following calendar year for all taxes reported on the excise tax return which includes retail sales tax and business & occupation tax when either the nexus standard for (a) apportionable activities and for sales subject to wholesaling business and occupation (B&O) tax or (b) other business activities, is met  The one-year trailing nexus is effective as of June 1, 2010.(Special Notice, Washington Department of Revenue, February 2, 2016)

(02/23/2016)

On June 15, 2015, Representative Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act (RTPA) of 2015 in the U.S. House of Representatives. The bill – similar to the Marketplace Fairness Act (MFA) of 2015 – pertains to sales and use taxcollection obligations for remote sellers, but the RTPA contains some differences and several additional provisions. Unlike the MFA’s $1 million small seller exception, the RTPA’s small seller exception is as follows: first year: $10 million; second year: $5 million; third year: $1 million. The exception goes away in the fourth year. Furthermore, under the RTPA sellers utilizing an electronic marketplace are not considered small sellers and are not entitled to the exception, no matter the year. Under the RTPA, sellers would not be audited by states where they don’t have a physical presence. There would be a three year statute of limitations for assessments on remote sellers. The bill would enable remote sellers to refund over-collected tax to customers. The RTPA also specifies that a state would not be authorized to impose a sales and use tax collection requirement on remote sellers until it has certified multiple software providers that are certified in all states seeking to impose authorization requirements. The RTPA would also allow customers to pursue refunds of over-collected tax from remote sellers. However, RTPA does not preempt states from imposing sales and use taxes on remote sellers that do not have physical presence under this definition. It merely authorizes states to impose sales and use tax on remote sellers without a physical presence. Under the RTPA, if a seller has nexus under existing law, including Quill v. North Dakota, then the state may still impose a sales and use tax collection requirement.  The bill is assigned to the Judiciary Committee just like the MFA.  On July 1, 2015 it was referred to the Subcommittee on Regulatory Reform, Commercial And Antitrust Law. (H.R. 2775, the Remote Transactions Parity Act of 2015)

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(09/08/2015)

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