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On July 14, 2016, Rep. Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016.  Taking the opposite approach of the Marketplace Fairness Act and Remote Transactions Parity Act, this proposed bill would limit the ability of states to require remote sellers to collect use tax. If enacted, the Act would codify the physical presence requirement established by the US Supreme Court in Quill Corp v. North Dakota.  The bill would define physical presence and create a de minimis threshold. If enacted, the bill would preempt click-through nexus, affiliate nexus, reporting requirements and marketplace nexus legislation. The bill would be effective as of January 1, 2017. The bill defines “seller” and provides that states and localities may not:

 

  • Obligate a person to collect a sales, use or similar tax; 
  • Obligate a person to report sales; 
  • Assess a tax on a person; or 
  • Treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.

 

Persons would be considered to have a physical presence only if during the calendar year the person: 

 

  • Owns or leases real or tangible personal property in the state; 
  • Has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or 
  • Maintains an office in-state with three or more employees for any purpose.

 

Physical presence would not include: 

 

  • Click-through referral agreements with in-state persons who receive commissions for referring customers to the seller; 
  • Presence for less than 15 days in a taxable year; 
  • Product delivery provided by a common carrier; or 
  • Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.

 

The bill defines seller to exclude marketplace providers; referrers; third-party delivery services in which the seller does not have an ownership interest; and credit card issuers, transaction or billing processors or financial intermediaries.Marketplace Providers are defined as any person other than the seller who facilitates a sale which includes listing or advertising the items or services for sale and either directly or indirectly collects gross receipts from the customer and transmits the amounts to the marketplace seller. (No Regulation Without Representation Act of 2016 (H.R. 5893))

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(08/23/2016)

A Florida statute that imposes a sales and use tax on florists did not violate the Commerce Clause of the U.S. Constitution as applied to online sales of flowers, gift baskets, and other tangible personal property. Additionally, the statute did not violate the Due Process Clause since the taxpayer’s activities created substantial nexus in Florida. The taxpayer did not maintain any inventory of flowers, gift baskets, and other items of tangible personal property for its online sales, but would instead use local florists to fill the orders. The taxpayer charged sales tax on flowers and other items delivered in Florida by local florists, but it did not charge sales tax on flowers and other items delivered outside Florida. The relevant statute provides that florists located in Florida are liable for sales tax on sales to retail customers regardless of where or by whom the items are to be delivered. It also states that Florida florists are not liable for sales tax on payments received from other florists for items delivered to Florida customers. This is a common statute specific to florists across the states.  An Appellate Court held that imposing taxes on sales to out-of-state customers for out-of-state flower and gift deliveries violated the Commerce Clause, and accordingly, the tax was unconstitutional as applied to those sales.

 

The Florida Supreme Court held that the relevant statute does not violate the Commerce Clause as applied to the taxpayer’s online sales. The taxpayer had more than a slight presence in Florida. Its economic activities and transactions occurred at its principal place of business in Florida, where online orders were taken. The taxpayer had been doing business in Florida since 2001. As a result, the taxpayer’s activities created substantial nexus in Florida. The taxpayer argued that Florida sales tax should not apply since the taxpayer was being taxed on out-of-state sales that were not consummated until delivery took place out of state. The Florida Department of Revenue responded that it was the transactions that occurred in Florida that were being taxed, and that the transactions occurred in Florida where the taxpayer facilitated every stage of the transaction. The statute taxes the transaction that occurs in Florida, not the items sold or the activities that occur out of state. The tax did not discriminate against interstate commerce nor provide a direct commercial advantage to local business. The statute contains no provision that affords preferential treatment or commercial advantage to a Florida business over an out-of-state business. The court also held that the tax was fairly related to the services provided by Florida and that there was a reasonable relationship between the taxpayer’s presence and activities in Florida and the tax at issue. As a result, the statute did not violate the dormant Commerce Clause.

 

Additionally, the statute did not violate the Due Process Clause. Due process requires that there be some minimal connection between the state and the transaction it seeks to tax. The taxpayer has a physical presence and does business within Florida, and its activities create substantial nexus in Florida. (Florida Department of Revenue v. American Business USA Corp., Florida Supreme Court, No. SC14-2404, May 26, 2016)

 

UPDATE: On February 21, 2017, the U.S. Supreme Court denied a request to review the Florida Supreme Court’s decision that upheld the state’s imposition of sales and use tax on online florist sales. Therefore, the Florida Supreme Court decision stands and the provisions related to the taxation of florist sales is constitutional. (American Business USA Corp. v. Florida Department of Revenue, U.S. Supreme Court, Dkt. 16-567, petition for certiorari denied February 21, 2017)

(03/13/2017)

For Florida sales and use tax purposes, if a taxpayer cannot provide an itemized list of materials and supplies at the inception of a contract or the contract does not otherwise qualify as a retail sale plus installment contract, the contract is usually categorized as a lump-sum contract. In a lump-sum contract, the contractor both furnishes and installs the materials and supplies on which the contractor will pay sales tax. No tax should be charged by the contractor on lump sum contracts.  However, contractors should collect and remit Florida sales tax on transactions in which it sells tangible personal property to its customers but does not install the property. If acontractor enters into a real property contract placing the sales tax obligation on the customer, then thecontractor should collect and remit the sales tax. A contractor who sells and installs fixturesunder a retail sale plus installation contract must collect and remit sales tax from the customer on the sale of tangible personal property.These types of contracts itemize 100% of the materials which the contractor agrees to sell at an agreed upon price and to complete the services for an additional price.  The purchaser must assume title to and risk of loss of the materials and supplies as they are delivered.  The terms of the contract govern the tax treatment.(Technical Assistance Advisement, No. 15A-019, Florida Department of Revenue, November 23, 2015, released February 22, 2016)

(05/10/2016)

Florida’s sales and use tax exemption for certain industrial machinery and equipment purchased by eligible manufacturing businesses has been made permanent. The exemption was previously scheduled to be repealed on April 30, 2017. The repeal date of April 30, 2017 will remain for the sales and use tax exemption for a mixer drum affixed to a mixer truck and the parts and labor required to affix the drum to the truck. For purposes of the exemption, the term “industrial machinery and equipment” has been amended to include tangible personal property or other property that has a depreciable life of 3 years or more which is used as an integral part in the recycling of metals for sale. An exemption is also added for "postharvest machinery and equipment" for eligible businesses. "Postharvest machinery" is defined as tangible personal property or other property that has a depreciable life of three years or more and that is used primarily for postharvest activities.  Repair parts, materials, and labor are included in the postharvest exemption. (Ch. 220 (H.B. 7099), Laws 2016, effective July 1, 2016)

(04/26/2016)

On February 11, 2016, the U.S. Senate approved a permanent extension of the Internet Tax Freedom Act (ITFA) that is included in H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill also establishes an end date of June 30, 2020 for the seven states that currently impose a tax on internet access: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. President Obama is expected to sign the permanent extension of the ITFA into law. The House of Representatives had previously passed H.R. 235, the Permanent Internet Tax Freedom Act, on December 15, 2015.  For our previous news item on this topic, visit Internet Tax Freedom Act Extended Through October 1, 2016.

 

UPDATE: On February 24, 2016, President Barack Obama signed into law the permanent extension of the Internet Tax Freedom Act.

 

(Trade Facilitation and Trade Enforcement Act of 2015)

(02/23/2016)

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