Stay up to date with sales tax: Join our mailing list!


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)

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)

The U.S. District Court, District of Colorado has issued a permanent injunction against the enforcement of a statute and regulations that impose notice and reporting requirements pertaining to use tax on out-of-state sellers, declaring them unconstitutional. For details on the notice and reporting requirements, click here to see our previous news item. The Direct Marketing Association filed the suit, alleging that the notice and reporting requirements violated the Commerce Clause of the U.S. Constitution by discriminating against and imposing an undue burden on interstate commerce. The court noted that the law did not treat in-state and out-of-state sellers in an impartial manner because the notice and reporting burden was only imposed on out-of-state sellers. The state argued that the bill does not discriminate because sellers can choose to comply with the law or voluntarily collect and remit sales and use tax, but the court rejected this argument. The court also invoked Quill Corp. v. North Dakota, finding that Colorado may not “condition an out-of-state retailer’s reliance on its rights on a requirement that the retailer accept a different burden, particularly when that burden is unique to out-of-state retailers.” The court concluded that the statute and regulations directly regulated and discriminated against out-of-state retailers and interstate commerce. The state did not demonstrate that its interests in collecting sales and use tax could not be adequately served by reasonable nondiscriminatory alternatives. The court also held that the statute and regulations violated the safe harbor established in Quill Corp. v. North Dakota because they improperly burdened interstate commerce by imposing a use tax collection burden on a retailer with no physical presence in the state. While the burden of the notice and reporting requirements is different than the burden of collecting and remitting tax, the sole purpose of the statute and regulations was the collection of use tax in instances where sales tax cannot be collected. (Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, Dkt. 10-cv-01546-REB-CBS, March 30, 2012)

 

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

(04/23/2012)

Colorado Governor John Hickenlooper has signed legislation approving a tax amnesty program that will run from October 1, 2011 to November 15, 2011. The amnesty program will apply to corporate and personal income taxes, sales and use taxes and county or municipal sales taxes collected by the Department of Revenue, gasoline and special fuel taxes, cigarette and tobacco product taxes, severance taxes, certain local improvement district sales taxes, sales and use taxes imposed by the Regional Transportation District, Denver Metropolitan Scientific and Cultural Facilities District, Metropolitan Football Stadium, and regional transportation authorities, and local marketing and promotion taxes and county lodging and rental taxes collected by the Department of Revenue. Under the program, certain taxpayers will be allowed to pay certain overdue taxes, including half of any interest due, without incurring fines or civil or criminal penalties. To qualify, taxpayers must not have been billed for any overdue tax before October 1, 2011. Additionally, the overdue tax must have been due for returns or reports that needed to have been filed before December 31, 2010, including returns which the Department of Revenue granted an extension for. If a taxpayer doesn’t pay the full amount during the amnesty period or an agreed-upon payment schedule or commits willful fraud in filing, they will be subject to civil or criminal penalties. (S.B. 184, Laws 2011, effective as noted; Release, Office of Colorado Gov. Hickenlooper, June 3, 2011)

(06/24/2011)

Pages

Scroll to Top