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President Barack Obama has signed federal legislation extending the Internet Tax Freedom Act (ITFA) through December 11, 2014 as part of the joint resolution which made continuing appropriations for fiscal year 2015. The ITFA was previously set to expire on November 1, 2014. The ITFA bars state and local governments from imposing multiple or discriminatory taxes on electronic commerce and taxes on Internet access.

 

For an update to this news item, see Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.

 

(P.L. 113-164 (H.J. Res. 124), 113th Congress, 2nd Session, Laws 2014)

(09/26/2014)

Colorado Governor John Hickenlooper has signed legislation which creates a rebuttable presumption that an out-of-state retailer has substantial nexus, effective July 1, 2014.  The legislation outlines the types of business activities that create taxable sales for not only a controlled group of corporations but also for unrelated persons who perform activities on behalf of an out of state seller.

 

The following activities apply regardless of whether the person who has physical presence in Colorado is part of a controlled group or not.  A person is presumed to be doing business in Colorado if that person enters into an agreement or arrangement with a person who has physical presence in Colorado, other than a common carrier, and the person who has physical presence:

 

  • sells under the same or a similar business name tangible personal property or taxable services similar to those sold by the person against whom the presumption of physical presence is asserted;
  • maintains an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business in the state to facilitate the delivery of tangible personal property or taxable services sold by the person against whom the presumption is asserted to such person’s in-state customers;
  • delivers, installs, or assembles tangible personal property in the state, or performs maintenance or repair services on tangible personal property that is sold to in-state customers by the person against whom the presumption is asserted; or
  • facilitates the delivery of tangible personal property to in-state customers of the person against whom the presumption is asserted by allowing such customers to pick up tangible personal property sold by such person at an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business maintained in Colorado.

 

The presumption may be rebutted by proof that the person, during the calendar year in question, did not engage in any activities in Colorado that are sufficient under U.S. Constitutional standards to establish nexus. The presumption does not apply to certain agreements or arrangements concerning advertising, affiliate marketing, and small businesses. The small business exception applies if the cumulative gross receipts from sales by the person outside of Colorado to instate customers in the prior calendar year is less than $50,000.

 

A person is also presumed to be doing business in Colorado if that person is part of a controlled group of corporations, and that controlled group has a component member, other than a common carrier, that has physical presence in Colorado, and the person who has physical presenceperforms any of the above activities or:

 

  • uses trademarks, service marks, or trade names in Colorado that are the same or substantially similar to those used by the person against whom the presumption is asserted;

 

The presumption may also be rebutted by proof that the component member with physical presence, during the calendar year in question, did not engage in any activities in Colorado that are sufficient under U.S. Constitutional standards to establish nexus. (H.B. 1269, Laws 2014, effective July 1, 2014)

(06/24/2014)

Colorado has issued a reminder that current Colorado sales tax licenses will expire on December 31, 2013.  Colorado sales tax licenses are valid for two years and expire at the end of each odd-numbered year.  The license renewal costs $16 and is required in order to collect and file Colorado state and local sales taxes.  If a business has multiple physical sales locations, each location requires a separate license. Licenses can be renewed through the Colorado Department of Revenue’s website or by mailing in Form DR 0594, Renewal Application for Sales Tax License. (Reminder: Sales Tax License Renewal Time, Colorado Department of Revenue Weblog, December 5, 2013)

(01/28/2014)

Representative Lamar Smith (Republican, Texas) has introduced a bill to bar multiple taxes on digital goods and services.  Smith had proposed an earlier bill which failed to pass.  This bill is a revised version of the earlier bill. The proposed bill – called the Digital Goods and Services Tax Fairness Act of 2013 – would only allow a state to tax sales of digital goods and services to customers with a tax address within that state. Additionally, states would be barred from imposing multiple taxes on digital goods. The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not included as a digital good in the bill. (H.R. 3724)

(01/28/2014)

The U.S. District Court of Appeals for the 10th Circuit has ruled that a lower federal court overstepped its jurisdiction when it declared unconstitutional and issued a permanent injunction against enforcement of a statute and regulations that impose notice and reporting requirements pertaining to use tax on out-of-state sellers.  To view our previous news item on the injunction, click here.  The lower court’s decision to impose the permanent injunction was based upon the court’s reasoning that the law placed an undue burden on interstate commerce.The U.S. Court of Appeals remanded the case to the federal district court to dismiss the plaintiff’s claims and to lift the permanent injunction.  The court cited the Tax Injunction Act, which states that federal courts should not enjoin, suspend or restrain any state tax assessments or collections if the disputed matter can be resolved by lower courts. The court noted that although its decision was based on the Tax Injunction Act, the doctrine of comity also favored the state.  The doctrine of comity is intended to "restrain federal courts from entertaining claims for relief that risk disrupting state tax administration." We will monitor the DMA response and Colorado’s enforcement provisions.  At this point, it appears the law is valid and affected sellers should evaluate their requirements to provide the appropriate notice on each invoice due to the significant potential penalties. 

 

UPDATE: On December 13, 2013, a federal district court judge issued an order dissolving the permanent injunction entered against the Colorado Department of Revenue regarding notice and reporting requirements pertaining to use tax on out-of-state sellers. The Colorado Department of Revenue has issued a notice stating that it will not enforce any penalties for failure to comply during the period the injunction was in place. The Department also will not assess penalties for a retailer’s failure to comply with the January 31, 2014 deadline to provide annual purchase summaries to their customers or the March 1, 2014 deadline to provide the annual report to the Department for their 2013 purchases. (Direct Marketing Association v. Brohl, U.S. Court of Appeals, Tenth Circuit, Dkt. 12-1175, August 20, 2013, The Direct Marketing Association v. Huber, U.S. District Court for the District of Colorado, Dkt. No. 10-cv-01546-REB-DBS, December 10, 2013)

 

UPDATE: A Denver district court judge has granted Direct Marketing Association's motion for a preliminary injunction against Colorado imposing notice and reporting requirements on remote sellers. The court found that the law discriminated against remote sellers who were required to collect sales tax or required to notify customers of use tax obligations. According to the Colorado Department of Revenue, retailers are not required to comply with the remote vendor reporting requirements at this time. However, the court’s decision does not affect a Colorado consumer’s liability for tax on any purchase on which sales tax was not collected. Customers are still required to file a Consumer Use Tax Return and pay the tax due.(Direct Marketing Association v. Department of Revenue, Denver District Court, No. 13CV34855, February 18, 2014, and Release - Internet Sales/Non-Collecting Retailers, Colorado Department of Revenue, February 19, 2014)

 

UPDATE: The U.S. Supreme Court has been asked to review the decision by the U.S. District Court of Appeals for the 10th Circuit which held that the federal Tax Injunction Act barred the exercise of federal court jurisdiction over the lawsuit challenging the constitutionality of the Colorado law. (Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt. 13-1032, petition for certiorari filed February 25, 2014)

 

UPDATE: The U.S. Supreme Court has agreed to review the decision of the U.S. District Court of Appeals for the 10th Circuit. (Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt. 13-1032, petition for certiorari granted July 1, 2014)

 

UPDATE: Oral arguments are scheduled to take place before the U.S. Supreme Court on December 8, 2014.

 

For an update on this news item, see Colorado Use Tax Notice and Reporting Requirements Become Effective July 1, 2017

 

(03/30/2015)

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