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An excavation business’ sales of sand and gravel as part of improvements to realty are subject to Indiana sales tax because the sales occurred under time and materials contracts. A contractor/retail merchant must collect and remit sales tax when it converts construction material into realty and separately states the labor charges and the construction materials costs. The excavation business did not have contracts for the work performed. The business purchased tangible personal property, marked it up then sold the property to its customers at the marked up price. The business separately stated the costs of labor and the costs of the property on its invoices. The business was operating as a time and materials contractor therefore the sales of sand and gravel are subject to Indiana sales tax.  Improvements to real property performed under a lump sum contract are not subject to sales tax.  Rather the contractor owes use tax on the cost of the materials incorporated into real property. (Letter ofFindings No. 04-20110582, Indiana Department of Revenue, July 25, 2012)

(06/12/2013)

A commercial printing company was liable for Indiana sales and use tax on postage charges for delivering printed materials because postage charges are taxable delivery charges. The company charged customers for actual postage costs without any markup, separately stating the charges on invoices.  Taxable gross retail income includes delivery charges, including postage fees.  As a result, the company was liable for Indiana sales and use tax on the postage charges.  The Department took the position that since the postage charges were provided as part of their completed product, they were considered part of the gross retail income subject to tax.   (Letter of Findings No. 04-20120527, Indiana Department of Revenue, March 27, 2013)

(06/12/2013)

Charges paid for the use of a mass emailing service were not subject to Indiana sales and use tax because there was no transfer of tangible personal property or specified digital products from the provider to the purchaser of the services.  The customer purchased mass email services for a fee, in which the customer used the provider’s services to send communications such as company announcements and promotions to mailing lists.  In cases such as this, the retail transaction is taxable if a person electronically transfers specified digital products to an end user and grants the unconditional right of permanent use of the specified digital products.  Since no specified digital products were transferred to the purchaser, the purchase of the email services is not subject to Indiana sales and use tax.  (Letter of Findings No. 04-20110492, Indiana Department of Revenue, June 27, 2012)

(06/12/2013)

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)

The Indiana Department of Revenue reminds retail merchants and withholding agents that sales and withholding taxes must be reported and paid electronically beginning January 1, 2013.  Quarterly withholding filings will be eliminated.  Additionally, as of June 30, 2012, anyone who is required to file more than 25 W-2s, 1099-Rs, or WH-18s had to file them electronically.  The Department also reminds taxpayers of Indiana’s free online tax filing system for sales and withholding tax returns (INtax).  (TaxTalk Blog, Indiana Department of Revenue, January 7, 2013)

(01/28/2013)

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