Stay up to date with sales tax: Join our mailing list!

On April 27, 2017, a bipartisan group of senators introduced the Marketplace Fairness Act of 2017 (MFA). Similar legislation was introduced in both 2013 and 2015 and failed to be enacted both times. If enacted, the legislation would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. The small seller exception is set again at $1 million of remote sales annually. The only other significant change from the 2015 version is a prohibition of making the effective date during the 4th quarter of the calendar year. For information on the previous versions of the bill, visit Senate Introduces Marketplace Fairness Act of 2015.  


On April 27, 2017, a bipartisan group of lawmakers introduced the Remote Transactions Parity Act (RTPA) of 2017. Similar legislation was introduced in 2015 but failed to be enacted. Like the MFA, the legislation would also create sales and use tax collection obligations for remote sellers, but has some differences and additional provisions. Some key differences from the Marketplace Fairness Act include a different definition of a small seller.  The RTPA has a phased in threshold starting at $10million in year one, then $5million, then $1million.  In year 4, there is no threshold.  In addition to the monetary thresholds, any seller that sells on an electronic marketplace is considered a small seller.  A difference from the 2015 version of the bill is an inclusion of a definition of remote seller which specifies when a company is NOT a remote seller which includes physical presences for more than 15 days in a state, leasing or owning real property and using an agent to establish or maintain the market in a state if the agent does not perform business services in the state for any other person during the taxable year.  For more information on the Remote Transaction Parity Act of 2015, visit House Introduces Remote Transactions Parity Act of 2015. (Marketplace Fairness Act of 2017, Remote Transactions Parity Act of 2017)


An information technology company was not liable for additional Indiana sales tax on online backup software it provided to its clients since the software was incidental to the company’s provision of online backup subscription services. Generally, if a serviceman transfers tangible personal property for consideration in conjunction with providing professional, personal, or other services, it constitutes a taxable retail sale unless the serviceman is in an occupation which primarily furnishes and sells services. The company was engaged in the business of providing IT support and other services to its clients. The provision of software was incidental to those services. Additionally, its clients did not incur any additional charge for the installation of the software. As a result, the online backup software was not subject to sales tax. (Letter of Findings No. 04-20160317, Indiana Department of Revenue, October 26, 2016)


An Indiana hotel operator, which provided meeting rooms and made food and beverages arrangements for customers, was not liable for sales tax on separately stated service charges for serving food and beverages on customer invoices. Generally, in Indiana, separately stated service charges for serving or delivering food and food ingredients furnished, prepared, or served for consumption at a location, or on equipment, provided by the retail merchant are not subject to sales tax. The taxpayer provided documentation establishing that it separately stated the food and beverage services charges on its customers’ invoices. As a result, these services were not subject to sales tax. The Department of Revenue had issued two bulletins that covered the audit period which specifically stated that these types of charges are not subject to tax.  The first bulletin (Bulletin 7) was in effect for the first two years of the audit.  Bulletin 41 was issued in January 2014 (year 3 of the audit) which was deemed to be clarification of the Department’s position rather than the establishment of a new position.  Therefore, the position detailed in Bulletin 41 applied to the entire audit period.  This is a good example of requiring the state to follow the same principles they impose on taxpayers when administrative “clarifications” are issued.  (Letter of Findings No. 10-20150692, Indiana Department of Revenue, October 26, 2016)


Purchases of shipping labels and printer ribbons by a manufacturer of medical devices did not qualify for an exemption from Indiana use tax since the labels and the ribbons did not constitute an integral and material part of the finished product. Indiana has a sales and use tax exemption for tangible personal property which is to be incorporated as a material or integral part into the final tangible personal property by a purchaser in the business of manufacturing, assembling, refining or processing.The printed labels purchased by the manufacturer were placed on the outside of shipping containers used to package the finished products that were then shipped to customers. The labels were used only for shipping and inventory control and were not a component part of the finished product. Therefore, they did not qualify for the state’s manufacturing exemption. Although the labels were required by the customer, the fact that something is essential does not mean the property has an immediate effect on the article being produced which is required for the exemption.  (Letter of Findings No. 04-20160010, Indiana Department of Revenue, August 31, 2016)


On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)



Scroll to Top