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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)

Florida has amended Rule 12A-1.056, regarding the tax due at the time of sale as well as tax returns and regulations.  The amendment incorporates a change that was made by legislation enacted in 2012.  The change provides that only those sales and use tax dealers who file electronic tax returns and remit the amounts due electronically will continue to be entitled to a collection allowance for sales tax returns due on or after July 1, 2012.  In addition, any dealer who files a timely return by electronic means and timely pays the amount due on the return by electronic means may elect to donate the amount of collection allowance that is allowed on that return to the Educational Enhancement Trust Fund. The revenues deposited into this trust fund will go to school districts that have adopted resolutions stating that the funds from this trust fund will be used to ensure that up-to-date technology is purchased for the classrooms in those districts and that teachers are trained in the use of the technology. (Rule 12A-1.056, Florida Department of Revenue, effective January 17, 2013)

(01/28/2013)

Individuals who are members of hotel rewards points programs are not required to pay Florida transient rental tax on rewards points redeemed for a room or room upgrade. The individual is only required to pay tax on charges not covered by the redeemed points.

However, a hotel may owe transient tax on a portion of its revenue related to excess reimbursements from a rewards fund. When a participating hotel receives more in reimbursements from the rewards program fund than it was required to contribute, taxes have not been paid on the funds received in excess of contributions, and the hotel must pay tax on the excess amount. Hotels should determine whether they’ve received more in reimbursements from the fund than it paid in contributions in January of each year using the preceding year’s total contributions and reimbursements. The hotel should take the total reimbursements received in the prior calendar year and subtract the total contributions paid in the prior calendar year, then divide that amount by the total reimbursements received in the prior calendar year. That percentage is then multiplied by the total reimbursements received in the current calendar year. Tax must be remitted on that amount. No “true-up” is required at any point. Special rules apply in the first year a hotel is participating in a rewards program. Any reimbursements subject to tax are to be included on the hotel’s sales and use tax return as part of the hotel’s gross transient rentals and taxable transient rentals. (Rule 12A-1.0615, Effective June 1, 2011; Tax Information Publication, No. 11A01-11, Florida Department of Revenue, December 13, 2011)

(01/17/2012)

The rental or leasing of property in Florida is taxable unless the property is exempt. A 6% tax is assessed on the total rent charged. A Florida Court of Appeals found that the cost of leasehold improvements was not part of the total rent charged to an individual and therefore was not subject to Florida sales and use tax. “Total rent” includes payments made for the privilege to use or occupy property, and it includes base rent, percentage rent, or similar charges. In the case in question, evidence didn’t exist that either party to the lease intended for the cost of leasehold improvements to be part of the total rent charged. As such, the cost of leasehold improvements was not subject to Florida sales and use tax. (Department of Revenue v. Ruehl No. 925, LLC, District Court of Appeal of Florida, First District, No. 1D11-2174, December 30, 2011)

(01/17/2012)

Service plans which were separately stated but sold in conjunction with computer servers are subject to sales and use tax in Florida. Computer servers qualify as tangible personal property. Since they are being sold as part of a tangible personal property sale, the service plans are subject to sales and use tax. Sales tax should be collected by sellers on the entire sale price. (Technical Assistance Advisement, No. 10A-035, Florida Department of Revenue, August 23, 2010)

(12/13/2011)

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