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Trade show visits by employees of an out-of-state seller were sufficient to create nexus for purposes of Washington sales and use and business and occupation (B&O) taxes. For a period of at least seven years, the seller’s representatives made at least four visits per year to trade shows in Washington in which the company displayed its products, made contact with potential buyers, discussed its service model with potential buyers, and distributed its sales catalogs. No sales of merchandise were made at the trade show nor were any orders taken at the shows.  The determination whether in-state activities create nexus looks to the entire collection of a taxpayer’s different activities, the totality of it which creates substantial nexus.  The direct presence of the seller’s representatives at Washington trade shows was significantly associated with establishing or maintaining a market for the sales of its products in the state.  The seller made sales over the Internet, by telephone, and by catalog. Orders were shipped from locations outside Washington to customers by common carrier. The Appeals Division noted that the state’s nexus standard is not whether the in-state activity directly solicits a sale, but, rather, whether the activity is "significantly associated with establishing or maintaining a market within this state." Unlike some other states, Washington does not have a trade show exemption. This decision follows other earlier decisions where taxpayers not only attended trade shows but had other in-state activities.  This decision clarifies that any activity associated with establishing or maintaining a market within Washington include a minimal number of visits will constitute nexus.(Tax Determination No. 14-0062, Washington Department of Revenue, August 28, 2014)

(09/29/2014)

An out-of-state company that designs and manufactures custom heating systems had nexus with Washington for business and occupation (B&O) tax purposes due to the presence of a third-party sales representative and company engineers who assisted in the installation of the systemswithin Washington. In order for the B&O tax to apply on sales of goods which originate outside of Washington, the goods must be received by the purchaser in Washington and the seller must have nexus with Washington.  The B&O tax will not apply if either of these two conditions are missing. 

 

The taxpayer contended that it did not have nexus and argued that its in-state activities were not related to generating sales. The court noted that the standard for establishing nexus is not whether the in-state activity directly solicits a sale, but whether the activity is significantly associated with establishing or maintaining a market within Washington. The court concluded that both the activities of the third-party sales representative and the employee engineers were significantly associated with maintaining a market for the taxpayer’s products in Washington. The presence of the employee engineers for field service engagements directly and specifically supported the sales of equipment. The fact that the field service engagement was available and that customers sometimes partook of this option was an important part of the sales process and sufficient to establish taxing nexus. (Tax Determination No. 13-0213, Washington Department of Revenue, April 30, 2014)

(06/24/2014)

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)

An out-of-state company has nexus with Washington and is subject to state business and occupation tax because independent contractor speakers who made presentations at live seminars in Washington for the company were representative third parties. Under Washington tax law, a "representative third party" includes an agent, independent contractor, or other representative of the taxpayer who provides services on behalf of the taxpayer directly to customers.  The volunteer speakers who made presentations at the live seminars in-state were providing services on the company’s behalf directly to the company’s customers.  As a result, the speakers created nexus in Washington for the company for business and occupation tax purposes. (Tax Determination No. 11-0292, Washington Department of Revenue, September 27, 2012)

(10/23/2012)

An out-of-state mail order company was determined to have substantial nexus in Washington due to the activities of one of its in-state sister entities. The sister company sold gift cards to customers that could be used to place catalog orders from any of the 3 retail entities, distributed the out-of-state company’s catalogs, and assisted the out-of-state company’s customers with returns. When gift cards were sold, the cash was received by and recorded in the financial records of the selling entity. The cash receipts were subsequently transferred to the parent company. When the gift cards were redeemed, the sale was recorded in the financial records of the redeeming company. As a result, the in-state sister entity was facilitating sales on behalf of the out-of-state company. All of the in-state entity’s activities were significantly associated with the out-of-state company’s ability to establish or maintain a market for sales in Washington. In addition, the 3 retail entities shared significant management activities. The three retail subsidiaries and the parent continued to share the same offices, and shared the same Chief Executive Officer, Secretary, and President. Pursuant to a shared services agreement, the parent provided the following services to the retail subsidiaries: executive management, financial services, advertising services, management information system services, regulatory affairs, procurement of all inventory items which are resold by the subsidiaries, management of gift card program, and miscellaneous other services. Therefore, the out-of-state company has substantial nexus in Washington for purposes of retail sales tax and retail and wholesale business and occupation tax. (Tax Determination No. 10-0057, Washington Department of Revenue, December 2011)

(02/22/2012)

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