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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)

Effective July 1, 2013, Arkansas’s state sales and use tax rate will increase from 6% to 6.5%. Arkansas voters approved a constitutional amendment to levy the temporary rate increase at the November 6, 2012 general election in order to provide funding for highways, bridges, roads, and other surface transportation projects. The temporary tax will apply to all taxable sales except food and food ingredients and will be collected, reported, and paid in the same manner as the general sales and use tax. The rate increase will be collected for approximately 10 years and will end when there are no bonds outstanding to which tax collections have been pledged. (Ballot Issue 1, November 6, 2012)

(01/28/2013)

Arkansas has reduced the sales and use tax rates on natural gas and electricity sold to manufacturers and to specified electric power generators. Effective July 1, 2011, the sales and use tax rate on natural gas and electricity sold to a manufacturer for use directly in the manufacturing process is reduced from 3.125% to 2.625%. An additional 0.125% constitutional rate must be added to the preceding statutory rate in order to obtain the total tax rate. To claim the reduced rate, manufacturers can file a refund request or amended return. When the tax savings received by taxpayers as a result of the reduced rate reach $27 million during a fiscal year, the refund and amended return process will be discontinued. Refund requests and amended returns will be processed in the order they are received. Taxpayers that didn’t receive a refund in a prior year will be given priority to receive a refund in the subsequent year. The statute of limitations for refunds and amended returns will be extended one year for such taxpayers to allow for the refund payment. The sales and use tax rate on natural gas and electricity sold to an electric power generator that operates a new or existing facility using combined-cycle gas turbine technology is reduced to the following rates: 5.125% beginning January 1, 2012, 4.125% beginning January 1, 2013, and 2.625% beginning January 1, 2014. Note that manufacturers and electric power generators must meet specified classifications of the North American Industry Classification System as in effect on January 1, 2011 to qualify for the reduced rates. (Act 754 (S.B. 275), Laws 2011, effective as noted)

(05/21/2012)

Arkansas has enacted an affiliate nexus and “click-through nexus” law. Under the new legislation, a seller is now considered to be engaged in selling property or taxable services in Arkansas if an affiliated person is subject to Arkansas sales and use tax and one of the following conditions exists: the seller sells a similar line of products as the affiliated person under the same or a similar business name, the affiliated person uses its in-state employees or facilities to advertise or promote sales by the seller to consumers, the affiliated person maintains a facility that facilitates the delivery of the seller’s products or services to their business, the affiliated person uses trademarks, service marks, or trade names in Arkansas that are the same or substantially similar to those of the seller, or the affiliated person delivers, installs, assembles, or performs maintenance for the seller’s customers in Arkansas. “Affiliated person” is defined as a person that is a member of the same controlled group of corporations as the seller or another entity that bears the same ownership relationship to the seller as a corporation that is a member of the same controlled group.

If there is no affiliated person, a seller is considered to be selling property or taxable services in Arkansas if they enter into an agreement with an Arkansas resident in which the resident directly or indirectly refers potential purchasers to the seller – through an internet link or otherwise – for commissions or other consideration. This only applies if cumulative sales to Arkansas purchasers who are referred to the seller exceed $10,000 in the preceding 12 months. The “click-through nexus” provision will take effect 90 days after the 2011 Legislature adjourns and will apply without regard to when the seller and resident entered into an agreement. Both the affiliate nexus and “click-through nexus” provisions may be rebutted with certain proof. (Act 1001 (S.B. 738), Laws 2011, effective October 27, 2011,, and as noted)

(06/24/2011)

During a Compliance Review and Interpretations Committee (CRIC) of the SST Governing Board teleconference, an interpretation request sought by a representative of the software industry was rejected. The Software Finance and Tax Executive Council (SoFTEC) sought a ruling that a software license upgrade (as opposed to an upgrade of the software itself) does not constitute “tangible personal property” or “computer software” where the only thing delivered to the purchaser is an alphanumeric code. Mark Nebergall, on behalf of SoFTEC, argued that providing enhanced license rights is intangible personal property. He differentiated this from a software upgrade that allows the software to cause the computer onto which it is loaded to perform more or different functions. Members of CRIC, and representatives of other states argued that it was contrary to the position currently taken in many states; it hid the true nature of the transaction, and would facilitate tax reduction strategies. Ultimately, the committee members voted unanimously to reject the proposed SoFTEC interpretation. They found that “computer software” as defined in the Agreement would in fact constitute a software license upgrade as described in proposed interpretation. (Teleconference, Compliance Review and Interpretations Committee)

(07/13/2009)

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