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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)

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)

The Colorado Department of Revenue has issued a permanent regulation on the sales and use taxation of software, with guidance on the de minimus rule and maintenance agreements. De minimus standardized software includes the base language used to write the software, prewritten subroutines with negligible commercial value, and prewritten subroutines that are purely incidental to the purpose of the software developed for the specific user. Standardized software is not de minimis if its purpose is to principally fulfill one or more purchaser specifications, it is identified prior to purchase in any way as being part of the software except with respect to the language software it is to be written in, or its value exceeds 25% of the value of the software designed or developed to the specifications of a specific purchaser. Standardized software does not include software that is designed or developed to the specifications of a specific user. Software designed and developed to the specifications of a specific user is not considered standardized software simply because it includes de minimis standardized software as part of its code. If a developer purchases de minimis standardized software to include in software that is designed or developed for a specific user, the developer must pay sales tax on the purchase of the standardized software.

Standardized software does not include maintenance agreements for the maintenance of standardized software. If the price of the maintenance agreement includes the price of standardized software, the agreement must contain a reasonable, separately stated charge for the software. If the value of the standardized software is less than 25% of the price of the maintenance agreement, then the agreement is not considered to include standardized software.

Colorado will recognize and tax an apportioned amount of computer software that will be used in multiple states under Multiple Point of Use (MPU). The regulation outlines how sales and use tax on MPU software is to be apportioned. (Reg. 39-26-102.13, Colorado Department of Revenue, effective March 2, 2011)

(04/13/2011)

Two pieces of Colorado sales and use tax legislation to repeal the “Amazon law” have been indefinitely postponed in committee. The first bill – S.B. 56 – would have provided a use tax exemption for Colorado purchases of tangible personal property from out-of-state retailers that do not collect Colorado sales tax and do not meet the requirements of the due process clause or the commerce clause as discussed in Quill Corp. v. North Dakota. The bill would have effectively nullified the Amazon law and in essence eliminated the use tax. The second bill – S.B. 73 – would have repealed multiple tax bills enacted in 2010, including the Amazon law. Both bills were indefinitely postponed in committee on February, 14, 2011. (S.B. 56 and S.B. 73, indefinitely postponed February, 14, 2011)

(03/14/2011)

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