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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)

Delaware is currently offering an amnesty opportunity for unclaimed property.  Currently, if the state of Delaware locates and contacts a taxpayer for an unclaimed property audit (generally conducted by third party auditors), the state can go back to 1981.  Few companies have the level of detailed records needed to handle an audit back to 1981. If a taxpayer has entities incorporated in Delaware, the state (as the state of incorporation) is entitled to all transactions for which there is an unknown address. Unclaimed property is not a tax, therefore, the normal tax audit statute periods provide no period limitation protection.  Some frequent unclaimed property types include: outstanding accounts payable and payroll checks; voided transactions lacking documentation support;  customer credit balances and deposits; use of third-party administrators; gift certificates/credit memos; unidentified remittances/receipts; actual property (products not picked up); stock certificates/dividends; and mergers/acquisitions (bundled debt/liability).  Under the amnesty program, if a company applies for amnesty eligibility by 6/30/2013, the look-back period is dramatically reduced to 1996 (as opposed to 1981), and penalties and interest are abated.  A self-audit is required with reporting and payment due by 6/30/2014.  If a company applies for amnesty eligibility by 6/30/2014, the look back period is reduced to 1993 (as opposed to 1981), and penalties and interest are abated.  A self-audit is required with reporting and payment due by 6/30/2015. Companies that have previously receive a Notice of Audit are ineligible to participate.  For more information, click here.

(02/25/2013)

The Delaware Division of Revenue has been authorized to establish a voluntary tax compliance initiative that will run from September 1, 2009 to October 30, 2009. This initiative is for tax liabilities due before January 1, 2009 and will apply to corporate and personal income, gross receipts, use, gift, lodging, estate, realty transfer, public utilities, income on estates and trusts tax, occupational license fees and tax, contractors’ license fees and tax, manufacturers’ license fees and tax, retail and wholesale merchants’ license fees and tax, and tobacco product license fees and tax. Penalties and interest will be waived if the taxpayer pays the outstanding tax during the initiative period or enters into a payment plan that is paid by June 30, 2010.

The Division will not assess any tax, penalty or interest for any voluntary tax returns filed under the initiative for periods before January 1, 2004. Sections related to the 50% limitation on the penalty for failure to file timely returns and the 75% limitation on the penalty for any fraudulent returns have been removed beginning December 31, 2009. Also effective December 31, 2009, the period for which interest accrues on an amended return has been changed to 46 days after the receipts of the amended tax return instead of 46 days after the original return was filed, which could have been three years earlier. (H.B. 268, laws 2009, effective as noted)

(07/09/2009)

The Delaware Supreme Court found that the wholesalers’ gross receipts tax applied on an out-of-state auto manufacturer’s receipts resulting from vehicles delivered in Delaware did not violate the Commerce Clause of the U.S. Constitution. The Court concluded that the tax satisfied the test articulated by the U.S. Supreme Court in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). Delaware’s wholesalers’ gross receipts tax did not pose a risk of multiple taxation because it only applied to sales of property physically delivered in Delaware. Only in Delaware did the delivery of taxed goods occur, and only Delaware had jurisdiction to tax this activity. Therefore, as in the Tyler Pipe Industries v. Washington State Department of Revenue, 483 U.S. 232 (1987) case, the tax was not “out of all appropriate proportion to the business transacted” in the state, and thus the Court found the tax was fairly apportioned. Furthermore, the tax did not discriminate again interstate commerce, as the Superior Court explained, the Wholesalers' Tax "treats any wholesaler engaged in wholesaling in Delaware the same. All must pay a tax on the gross receipts of the wholesaling activity without regard to where or how the goods were manufactured or assembled." (Ford Motor Co. v. Director of Revenue, Delaware Supreme Court)

(06/29/2009)

Effective for taxable periods January 1, 2009 through March 31, 2012, gross receipts tax rates will be temporarily increased. After the effective period, the rates will return to the prior percentages. (H.B. 513, Laws 2008, effective as noted above)

(10/20/2009)

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