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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)

Arkansas has issued guidance on the sales tax treatment of drop shipment transactions. In the example provided, Seller Corporation, which is required to collect sales or use tax for Arkansas, sells products to Buyer Corporation located in another state, which then resells the products to Other Corporation located in Arkansas and has Seller Corporation ship the products directly to Other Corporation. Arkansas views the sale between Seller and Buyer as an exempt sale-for-resale. The sale from Buyer to Other Corporation is a taxable transaction. However, if Buyer does not have nexus in Arkansas, then Arkansas cannot collect use tax from Buyer and will look to Other Corporation to pay the consumer use tax. Arkansas would not hold Seller liable for any sales tax incurred in the sale between Buyer and Other Corporation. The tax treatment of the sale between Seller and Buyer stays the same whether Seller delivers the products in its own equipment or uses a common carrier, by the FOB terms of the sale, by whether the Seller ships from an inventory pool in Arkansas or an inventory pool in another state, or by whether Seller has a direct pay certificate from Buyer instead of a resale certificate from Buyer’s home state. If Other Corporation installs the items in the performance of a construction contract with an exempt agency in Arkansas, Arkansas would still assess consumer use tax against Other Corporation, regardless of the status of Other Corporation's customer since Arkansas deems contractors to be the consumers of services and tangible personal property that they purchase for use in their jobs.(Revenue Legal Counsel Opinion No. 20160104, Arkansas Department of Finance and Administration, February 9, 2016)

(05/11/2016)

Electricity used by a cold storage and blast freezing facility to blast freeze food products that have been manufactured by its customers does not qualify for the Arkansas reduced sales tax rate for electricity used directly by a manufacturer in the actual manufacturing process. The facility’s blast freezing services are used to preserve and prevent spoilage of finished food products. The manufacturing of the food products is completed by the time they are blast frozen by the facility. Since the facility is not involved in the actual manufacturing of the food products, the reduced sales tax rate does not apply to the electricity consumed by the blast freezers.If the same process was performed by the manufacturer, the process would be included in the manufacturing process and the reduced rate for the electricity would apply.(Revenue Legal Counsel Opinion No. 20151008, Arkansas Department of Finance and Administration, February 9, 2016)

(05/05/2016)

A company that sells products through a network of independent distributors does not need to charge sales tax on sales of dashboard services and personal websites if offers for a price to its distributors. The dashboard service provides access to distributorship activity information, and the personal websites allow distributors to give presentations via mobile devices and to add customers and downline distributors to their shopping cart and online sponsoring. The software, which is downloaded by the distributors from the company’s server, is not subject to Arkansas sales tax so long as the software is not provided to the distributors in any tangible form. Allowing access to online servers is not a specified taxable service in Arkansas. Sales tax does not apply regardless of whether the purchases of dashboard services and personal website services are bundled or separately stated. Fees charged by the company for reports that are accessible online are not subject to sales tax so long as the reports are not printed and sold to the purchaser. Fees charged for paper copies of records constitute taxable sales of tangible personal property.(Revenue Legal Opinion No. 20151103, Arkansas Department of Finance and Administration, January 13, 2016)

(03/23/2016)

On February 11, 2016, the U.S. Senate approved a permanent extension of the Internet Tax Freedom Act (ITFA) that is included in H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill also establishes an end date of June 30, 2020 for the seven states that currently impose a tax on internet access: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. President Obama is expected to sign the permanent extension of the ITFA into law. The House of Representatives had previously passed H.R. 235, the Permanent Internet Tax Freedom Act, on December 15, 2015.  For our previous news item on this topic, visit Internet Tax Freedom Act Extended Through October 1, 2016.

 

UPDATE: On February 24, 2016, President Barack Obama signed into law the permanent extension of the Internet Tax Freedom Act.

 

(Trade Facilitation and Trade Enforcement Act of 2015)

(02/23/2016)

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