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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)

Alabama has adopted a new nexus rule providing that out-of-state remote sellers making retail sales of tangible personal property in Alabama are required to register with Alabama for a sales tax license and collect and remit sales tax on all sales made within the state if the seller has substantial nexus.  The conditions under which an out-of-state seller must collect and remit sales tax include (but are not limited to) the following:  delivery within the state by means of a vehicle owned by the selling entity; the seller maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business; or the seller employs or retains under contract any representative, agent, salesman, canvasser, solicitor or installer operating in the state under the authority of the person or its subsidiary for the purpose of selling, delivering, or the taking of orders for the sale of tangible personal property or any services subject to tax or otherwise solicits and receives purchases or orders by any agent or salesman. 

Under the new affiliate nexus provisions, a seller may also have substantial nexus in Alabama due to business activities conducted in-state by the seller’s affiliates.  A remote seller has substantial nexus with the state if the seller and an in-state business maintaining one or more locations within the state are related parties; and the remote seller and the in-state business use an identical or substantially similar name, trade name, trademark, or goodwill, to develop, promote, or maintain sales, or the in-state business and the seller pay for each other's services in whole or in part contingent upon the volume or value of sales, or the in-state business and the seller share a common business plan or substantially coordinate their business plans, or the in-state business provides services to, or that inure to the benefit of, the business related to developing, promoting, or maintaining the in-state market.  Specific rules define a related party based on the nature of the business within the Rule.  Transactions on which sales tax is collected by a licensed seller are exempt from use tax obligations of the purchaser.  (Rule 810-6-2-.90.01, Alabama Department of Revenue, effective August 24, 2012)

 

(10/23/2012)

At a meeting on May 23-24, 2012, the Streamlined Sales Tax (SST) Governing Board voted to allow member states to apply origin-based sourcing to intrastate sales and discussed a number of other issues. The board approved an amendment to the SST Agreement that permits states that apply origin-based sourcing to intrastate sales to become full members of the Agreement. The amendment will allow associate members Ohio and Utah to become full member states once they submit applications and are found in compliance. The board plans to meet in June to vote on full membership, which would take effect on October 1, 2012. The board also discussed the status of federal remote-seller legislation and a number of other issues, rules, and amendments to the Agreement. (Streamlined Sales Tax Governing Board and State and Local Advisory Council Meetings, Milwaukee, Wisconsin, May 22-24, 2012)

(06/22/2012)

The U.S. Supreme Court has held that a railroad may challenge Alabama sales and use taxes that apply to rail carrier’s purchases of diesel fuel but exempt those purchases by rail competitors such as interstate motor and water carriers, under the federal Railroad Revitalization and Regulatory Reform (4-R) Act. While Congress prohibited 4-R Act challenges based on property tax exemptions for non-railroad property, it did not prohibit challenges based on non-property tax exemptions. The Court is bound by the statute that Congress wrote. The case was remanded to trial court to determine if Alabama had discriminated against the railroad or whether it can offer sufficient justification for declining to provide the exemption to rail carriers. Railroads are required to pay Alabama sales and use tax on purchases of diesel fuel, but interstate motor and water carriers can purchase diesel fuel tax-exempt. The railroad challenged this taxing scheme as a violation of the 4-R Act’s prohibition on taxation discrimination against rail carriers. A U.S. Court of Appeals had dismissed the challenge, based on a prior court decision which held that the 4-R Act does not prevent a state from exempting other commercial entities from a generally applicable tax and leaving the tax on railroads in place, so long as the railroad is not targeted. The Court relied on another decision, in which the U.S. Supreme Court held that a railroad could not challenge a generally applicable property tax on the basis that certain non-railroad property was exempt from the tax. The U.S. Supreme Court accepted the railroad’s request for review and reversed the Court of Appeals’ decision. The Court held that the 4-R Act’s prohibition on tax discrimination includes sales and use taxes, and that prohibited discrimination can arise from exempting competitors from a tax. The 4-R Act bars four forms of discriminatory taxation. The first three forms are related to property tax. The fourth is a catchall that prohibits “another tax that discriminates against a rail carrier.” The court held that “another tax” refers to any tax a state can impose, except the taxes that fall under the other three subsections. It does not apply only to gross receipts taxes that some states imposed in lieu of property taxes, as Alabama argued. A state excise tax, such as sales and use taxes, that applies to railroads but is exempt for competitors, whether interstate or local, is subject to challenge as a discriminatory act under the fourth subsection of the 4-R Act. The Court’s decision in one of the previously referenced cases was based on property tax. Congress expressed no interest to insulate non-property tax exemptions from the 4-R Act’s prohibition on discriminatory taxation. The subsection pertaining to “another tax” is drafted more broadly than the other three subsections, and it does not contain their limitations. Alabama argued that distinguishing between property tax exemptions and other tax exemptions is illogical. The Court did not disagree, but the Court is bound by the language of the statute as drafted by Congress. Two Supreme Court justices who dissented held that, based on the structure of the 4-R Act, a tax exemption scheme must single out railroads by comparison to general commercial and industrial taxpayers in order to violate the act. Under this test, the railroad’s complaint was properly dismissed because it did not allege that Alabama sales and use tax targeted railroads. The dissenters did not understand the majority opinion.

 

To see an update on this news item, visit U. S. Supreme Court Rules that Rail Carrier’s Competitors are Comparison Class in Discrimination Claim.

 

(CSX Transportation, Inc. v. Alabama Department of Revenue, U.S. Supreme Court, Dkt. 09-520, February 22, 2011)

(05/21/2012)

On May 3, 2012, Alabama Governor Robert Bentley signed into law S.B. 459, commonly referred to as the “ONE SPOT” bill. ONE SPOT stands for “Optional Network Election for Single Point Online Transactions.” Under the bill, businesses will have the option to file all of their sales, use, and rental tax returns and remit payment online. All local taxing jurisdictions will be required to use the system. The bill calls for a state and local advisory committee to be established and give recommendations to the Alabama Department of Revenue on the system’s implementation. The bill is intended to reduce the administrative burden on businesses with locations or other physical presence in multiple cities and counties in Alabama. Currently in Alabama, businesses having nexus in multiple cities and/or counties must file separate sales, use, and rental tax returns for each location unless those cities or counties are administered by the Department or by one contract auditing firm. According to the Governor, the service is free of charge for businesses and local jurisdictions. The system must be in place no later than September 30, 2013. (S.B. 459)

(05/21/2012)

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