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Beginning in 2006, (starting on the first Friday in August), there will be an annual, three-day sales and use tax holiday for purchases of covered items. Exempt items include: clothing, including footwear (excluding accessories or sports equipment), which do not exceed one-hundred dollars per item. Computers and computer software (not exceeding $750 per item), school supplies and instructional materials (not exceeding fifty dollars per item), and certain books also qualify for the exemption. Local governments are permitted to offer the same exemption from local sales and use taxes, but are restricted from offering a similar holiday at any other time. (H 228)


In Office Max, Inc. v. United States, the Federal District Court in Ohio ruled that the IRS may only collect the federal excise tax for long-distance telephone service on charges that vary by the distance of the calling parties and by the duration of each transmission. The IRS challenged that the Internal Revenue Code defined toll telephone service as containing a charge that varied with the duration of the call, or the distance between the parties, or both. Because most long-distance service providers do not incorporate the distance of the call into the final charge, the ruling finds the IRS wrongly collected the federal excise tax. However, less than a month before, a similar lawsuit filed by American Bankers Insurance Group (ABIG) in a separate Federal District Court resulted in favor of the IRS. (Office Max, Inc. v. United States No. 04-4009)


Two bills brought to Congress by Senators Byron Dorgan (D-N.D.) and Mike Enzi (R-Wyo) would nullify the “physical-presence” requirement for nexus as stipulated in Quill Corp. v. North Dakota. The legislation requires a remote seller to an SST member state to collect sales and use tax. Sales to associate member states would not have this responsibility. Businesses with total remote sales of less than $5 million in the past year under the Enzi bill or those firms deemed small businesses by the U.S. Small Business Administration under the Dorgan legislature would be exempt from collecting the remote sales and use tax. Both bills require states to provide sufficient compensation to sellers for the added compliance. It is not likely, however, that either bill will pass during the current congressional session. (S. 2153; S. 2152 , U.S. Senate Dec 20, 2005)


A hearing was conducted on December 6, 2004 in Birmingham, Alabama, in regards to a taxpayer owning video and other coin-operating amusement game equipment and leasing it to various businesses in Alabama. As a Taxpayer, it performs a standard lease agreement with the business owners that requires the business to pay a rental fee of fifty percent of the gross receipts that succumb from the machines. However, the Department determined that the Taxpayer was liable for sales tax on 100 percent of the machine receipts. Mack, a business owner, owned amusement machines that he allowed to run in various other businesses in Alabama. He claimed that he paid sales tax on his half of the gross proceeds, and that the location owners were supposed to pay tax on their half of the proceeds. Nonetheless, the Taxpayer argued that Mack controlled the machines and paid the location owners a commission for allowing him to put the machines at their venue. Thus, Mack was “in the business of conducting or operating ... amusement devices ...” and was thus directly liable for tax on the gross



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