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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 March 22, 2017, Alabama Gov. Robert Bentley signed legislation authorizing the Alabama Department of Revenue (DOR) to require non-collecting remote sellers to report Alabama sales to the DOR and notify Alabama customers of their use tax obligations. The requirements would apply to out-of-state sellers who do not collect sales tax, use tax, or simplified sellers use tax on Alabama sales. Penalties can be assessed under the general penalty provisions.  Specific details regarding the nature of the reporting and penalties for non-compliance have not be released. The legislation is effective July 1, 2017. (Senate Bill 86 (Act 2017-82), Alabama Department of Revenue)

(03/27/2017)

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)

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)

Alabama has held that an out-of-state retailer that sold books and educational materials was subject to Alabama use tax since the taxpayer had sufficient contacts or nexus in Alabama to require it to collect, report, and remit use tax. During the school year, the taxpayer mailed catalogs, order forms, and promotional coupons to schools as well as homes where children were homeschooled. At the schools, classroom teachers distributed catalogs and order forms to students, collected the completed order forms then mailed the forms and payment to the taxpayer. The taxpayer then shipped the items to the attention of the teacher and the teacher distributed the items to the students. The state held that the taxpayer clearly directed its sales activities towards Alabama residents when it mailed catalogs, order forms, and promotional materials to thousands of school teachers and parent educators in the state during every month of the school year in the period at issue. The taxpayer also availed itself of Alabama’s economic market by making nearly $18 million in sales to Alabama customers during the period at issue. As such, the taxpayer had due process nexus with Alabama. The state also held that the taxpayer had commerce clause nexus with Alabama since the activities of the teachers in Alabama were clearly and significantly associated with the taxpayer’s ability to establish and maintain a market for its sales in-state. By agreeing to distribute the materials to students, the teachers were in substance soliciting or at least promoting sales on behalf of the taxpayer. That the teachers were not required to do so, may not personally benefit from the activities, may also purchase items from the taxpayer, and were motivated to help their students and not the taxpayer, were deemed irrelevant. The teachers did substantially more than just distribute the taxpayer’s materials. They gathered completed order forms and compiled them on a master order form. They mailed the master order form and the money to the taxpayer, received and distributed the purchased items, and communicated and worked with the taxpayer to resolve any issues concerning the transactions. In substance, the teachers were a voluntary sales force whose activities in Alabama were essential and necessary for the taxpayer to make sales in Alabama. As a result, the presence and activities of the teachers on behalf of the taxpayer established a physical presence for the taxpayer in Alabama sufficient to establish commerce clause nexus. (ScholasticBook Clubs, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 14-374, March 25, 2016)

(07/25/2016)

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