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The Multistate Tax Commission (MTC) has announced a sales/use tax and income/franchise tax amnesty program for online sellers that will run from August 17 to November 1, 2017 (previously October 17, 2017). Qualified online sellers with potential tax liability may be able to use the MTC's voluntary disclosure agreement (VDA) to negotiate a settlement during the amnesty period if they meet certain eligibility requirements. Taxpayers that have not been contacted by any of the states participating in the amnesty program will be able to apply to start remitting sales tax on future sales without penalty or liability for unpaid, prior accumulated sales tax in the participating states. 25 MTC member states have agreed to participate in the amnesty program. The participating states include: 

 

  • Alabama
  • Arkansas
  • Colorado (sales/use tax only)
  • Connecticut
  • District of Columbia (may not waive all prior periods)
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts (special provisions apply)
  • Minnesota (special provisions apply)
  • Missouri
  • Nebraska (may not waive all prior periods)
  • New Jersey
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas 
  • Utah
  • Vermont
  • Wisconsin (will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax)

 

Some of the additional states may require a limited look-back period for prior tax liabilities. Sellers who wish to participate in the program will need to file the voluntary disclosure program paperwork during the program dates. The MTC will route the paperwork for each participating state for which the seller is seeking amnesty protection. For more details visit the MTC website.

 

UPDATE: The Multistate Tax Commission's online seller amnesty program is now over. If you didn't take advantage of this program but realize you need to evaluate your activities, you can contact us here.

(11/07/2017)

The sale of online banking, online bill payment, and mobile banking products to financial institutions were not subject to Indiana sales and use tax because the products were nontaxable services. The company provides services over the internet that allows customers of a financial institution to view and manage their personal bank accounts online.While the company provides apps to customers to download, the company is providing the services of accessing information and paying bills online. The products are not subject to Indiana sales or use tax, as they are nontaxable services with the provision of tangible personal property incident to the service provided. The products do not meet the definition of a taxable “telecommunication service.” In addition, the fact that the service includes the apps which are tangible personal property, these are considered incidental to the service provided and will not change the non-taxable service into a taxable sale. (Revenue Ruling No. 2015-09ST, Indiana Department of Revenue, April 13, 2017, released June 2017)

(07/26/2017)

On June 12, 2017, Rep. Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goodlatte (R-VA) introduced the No Regulation Without Representation Act of 2017. A previous version of this bill had been introduced in 2016 and failed to pass. Under the proposed bill, a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed. Under the proposed bill, the physical presencerequirement would apply to sales and use taxand net income and other business activities taxes, as well as the states’ ability to regulateinterstate commerce. “Physical presence” in a state includes:

 

  • maintaining a commercial or legal domicile in the state;
  • owning, holding a leasehold interest in, or maintaining real property such as an office, retail store, warehouse, distribution center, manufacturing operation, or assembly facility in the state;
  • leasing or owning tangible personal property (other than computer software) of more than de minimis value in the state;
  • having one or more employees, agents or independent contractors present in the state who provide on-site design, installation, or repair services on behalf of the remote seller;
  • having one or more employees, exclusive agents or exclusive independent contractors present in the state who engage in activities that substantially assist the person to establish or maintain a market in the state; or
  • regularly employing in the state three or more employees for any purpose.

 

“Physical presence” in a state would not include:

 

  • entering into an agreement under which a person, for a commission or other consideration, directly or indirectly refers potential purchasers to a person outside the state, whether by an Internet-based link or platform, Internet Web site or otherwise;
  • any presence in a state for less than 15 days in a taxable year (or a greater number of days if provided by state law);
  • product placement, setup or other services offered in connection with delivery of products by an interstate or in-state carrier or other service provider;
  • Internet advertising services provided by in-state residents which are not exclusively directed towards, or do not solicit exclusively, in-state customers;
  • ownership by a person outside the state of an interest in a limited liability company or similar entity organized or with a physical presence in the state;
  • the furnishing of information to customers or affiliates in such state, or the coverage of events or other gathering of information in such state by such person, or his representative, which information is used or disseminated from a point outside the state; or
  • business activities directly relating to such person's potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the state.

 

In addition, the bill prohibits the imposition or assessment of a sales, use or other similar tax or a reporting requirement unless the purchaser or seller has physical presence in the state.  This would prohibit all the remote seller legislation (click through, affiliate, economic, marketplace and reporting/notification). If enacted, the legislation would apply with respect to calendar quarters beginning on or after January 1, 2018. (No Regulation Without Representation Act of 2017)

(07/12/2017)

A company that rents and leases aircrafts to other businesses was required to collect Indiana sales tax on the leasing of an aircraft it acquired in an exchange based on the total consideration the company provided for the aircraftwith a deduction for the value of a like-kind exchange. The rental company acquired a new aircraft in exchange for an old aircraft (valued at $432,700) and $1,092,300. The seller of the new aircraft had acquired it for the primary purpose of helping the rental company to facilitate an IRC §1031 tax-deferred gain.

 

A like kind exchange of property is exempt in Indiana. However, Indiana law states that a like kind exchange does not occur when one party to the transaction, through agreement or negotiation with the second party, acquires personal property for the primary purpose of exchanging that property for like kind property held by the second party. The new aircraft may have been acquired in order to qualify for a §1031 exchange, but a §1031 exchange can only happen if there is a like kind exchange. Therefore, the primary purpose of the seller acquiring the new aircraft was to exchange the plane for like kind property held by taxpayer (in order to qualify for a §1031 exchange). For that reason, the transaction does not qualify as a like kind exchange. As a result, the sales tax base of the transaction would not be reduced, and the full amount of consideration ($1,525,000.00, which is the value of the old plane plus the cash exchanged) given by the rental company would be the “net acquisition price.”

 

Since the rental company purchased the new aircraft with the intention of renting/leasing it, it was able to purchase the aircraft exempt from Indiana sales tax. In lieu of paying tax on the purchase price, the rental company must annually collect an amount equal to or greater than 7.5% of the net acquisition price from renting or leasing the new aircraft in order to qualify for the exemption. Tax is collected on the amounts collected for the rental of the aircraft. (Revenue Ruling No. 2015-20ST, Indiana Department of Revenue, July 14, 2016)

(05/24/2017)

Effective July 1, 2017, Indiana has enacted economic nexus legislation affecting remote sellers. Sellers that do not have a physical presence in Indiana will be required to collect and remit Indiana sales tax and comply with the procedures and requirements of Indiana’s sales tax laws if the seller meets either of the following criteria for the calendar year in which the retail transaction is made or for the calendar year preceding the calendar year in which the retail transaction is made:

 

  • The seller’s gross revenue from any combination of sales of tangible personal property delivered into Indiana, a product transferred electronically into Indiana, or a service delivered in Indiana exceeds $100,000; or
  • The seller sells any combination of tangible personal property delivered into Indiana, a product transferred electronically into Indiana, or a service delivered in Indiana in 200 or more separate transactions. 

 

The Indiana Department of Revenue may bring a declaratory judgment action against a remote seller to establish that the person has an obligation to collect Indiana sales tax and that the person’s obligation to collect Indiana sales tax is valid under state and federal law. The department and other state agencies and state entities may not, during the pendency of the declaratory judgment action - including any appeals from a judgment in the declaratory judgment action - enforce the obligation to collect Indiana sales tax against any person that does not affirmatively consent or otherwise remit the sales tax on a voluntary basis. The latter does not apply to a person if there is a previous judgment from a court establishing the validity of the obligation to collect state gross retail tax with respect to that person.

 

Included in the statute is an explanation for the enactment of the remote seller collection provisions with a plea to the U.S. Supreme Court to reconsider its doctrine that prevents states from requiring remote sellers to collect the tax.  It also claims that the non collection of the tax by remote sellers causes significant harm to the state of Indiana. (H.B. 1129, Laws 2017, effective July 1, 2017)

 

UPDATE: On June 30, 2017, the trade associations American Catalog Mailers Association and NetChoice filed a lawsuit challenging the constitutionality of Indiana’s economic nexus legislation. The American Catalog Mailers Association and NetChoice are challenging the legislation as being in violation of the Commerce Clause of the U.S. Constitution as interpreted by the Supreme Court in Quill v. North Dakota. The trade associations made attempts to convince Indiana to suspend enforcement of the provision pending the decision in the South Dakota case on economic nexus but the state has not responded.  The statute included provisions that prohibit the state from enforcing the obligation to collect Indiana sales tax against any person that does not affirmatively consent or otherwise remit the sales tax on a voluntary basis during the pendency of the declaratory judgment action - including any appeals from a judgment in the declaratory judgment action.  We recommend that no company voluntarily elect to collect if their only presence in the state is under these economic nexus provisions. We will continue to monitor for developments. (American Catalog Mailers Association and NetChoice v. Adam Krupp, in his official capacity as the Commissioner of the Indiana Department of Revenue, Eric Holcomb, in his official capacity as the Governor of the State of Indiana, and Indiana Department of Revenue)

(05/09/2017)

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