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Kansas has enacted legislation containing click-through and affiliate nexus provisions. Effective 90 days after the enactment of the legislation, a retailer is presumed to be doing business in Kansas if the retailer enters into an agreement with a Kansas resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link or a website, telemarketing, an in-person oral presentation, or otherwise, to the retailer. To be presumed to be doing business in Kansas, cumulative gross receipts from sales by the retailer to customers in Kansas who are referred to the retailer by all residents with this type of an agreement with the retailer must be more than $10,000 during the preceding 12 months. This presumption can be rebutted if the retailer submits proof that the Kansas residents with whom the retailer has an agreement did not engage in any activity within the state significantly associated with the retailer’s ability to establish or maintain the retailer’s market in the state during the preceding 12 months. Proof can consist of sworn written statements obtained in good faith from all of the residents with whom the retailer has an agreement stating that they did not engage in any solicitation in the state on behalf of the retailer during the preceding year. For purposes of the legislation, “preceding 12 months" includes the 12 months beginning prior to the effective date of the legislation. Additionally, the date when a retailer and a resident enter into this type of agreement is not relevant.

The legislation also creates a rebuttable presumption that a retailer is doing business in Kansas if an affiliated person of the retailer with a physical presence, or employees or agents in Kansas, has sufficient nexus in Kansas to require the retailer to collect and remit sales and use taxes on taxable retail sales of tangible personal property or services. The affiliate nexus presumption can be rebutted by showing that the activities of the affiliated person are not significantly associated with the retailer’s ability to establish or maintain a market in Kansas for the retailer’s sales. "Affiliated person" is defined as any person that is a member of the same "controlled group of corporations" as the retailer, or any other entity that, regardless of how it is organized, bears the same ownership relationship to the retailer as a corporation that is a member of the same controlled group of corporations.

The presumption that a retailer is doing business in Kansas also applies if any person (other than a common carrier acting in its capacity as such) who has sufficient nexus in Kansas to require the collection and remittance of sales and use taxes: 1) uses trademarks, service marks, or trade names in Kansas that are the same or substantially similar to those used by the retailer; 2) delivers, installs, assembles, or performs maintenance services for the retailer’s customers within Kansas; 3) facilitates the retailer’s delivery of property to customers in Kansas by allowing the retailer’s customers to pick up property sold by the retailer at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Kansas; or 4) conducts any other activities in the state that are significantly associated with the retailer’s ability to establish and maintain a market in the state for the retailer’s sales. These four categories are in addition to any other categories currently in effect under the law.

The Department has provided additional guidance stating that the click-through nexus provisions take effect on October 1, 2013. The affiliate nexus provisions and various amendments to the definition of "retailer doing business in this state" take effect on July 1, 2013. The Department also reminded taxpayers that every retailer doing business in Kansas who makes taxable sales of tangible personal property for use, storage, or consumption in Kansas has a duty to collect Kansas state and local use tax due from customers and to timely report and remit the taxes. (S.B. 83, Laws 2013, effective upon publication in the Kansas Register; Notice 13-05, Kansas Department of Revenue, May 10, 2013)

(05/17/2013)

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 Kansas Department of Revenue issued an opinion letter regarding the sales tax treatment of transactions involving the furnishing of equipment with an operator. The company in question provides audio and visual equipment to record events for customers. The company’s technicians set up and operate the equipment. In Kansas, sales tax applies to the purchases and leases of equipment by the service company that it will furnish to customers with an operator. In cases such as this, the charges to the customer are considered as a service rather than as a rental or lease of equipment. Only specified services are subject to sales tax in Kansas, and event recording is not specified as a taxable service. Hence, the company’s charges for recording special events are not subject to Kansas sales tax, with one exception. If the company edits and produces videos of the event, the charges for the edited videos would be taxable if provided on a tangible medium (such as a DVD). If the company provides this service, the Department recommends contracting the editing service separately from the contract for furnishing equipment with an operator. Providing a client with raw, unedited video would not be subject to sales tax. However, if the company were to furnish equipment along with a third-party operator and provide an edited copy of the event on a tangible medium, the company would be required to collect sales tax on the entire amount billed to the customer. (Opinion Letter No. O-2011-007, Kansas Department of Revenue, July 18, 2011)

(05/21/2012)

The Kansas Supreme Court upheld a decision made in favor of a taxpayer seeking a refund of sales tax paid under the integrated plant theory exemption. The exemption applies to purchases of machinery and equipment (and repair and replacement parts) used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility. The taxpayer was seeking a refund of sales tax paid on the purchase of repair parts for loaders and haulers used to move raw limestone within its property from its quarry to its hammermills. The Kansas Department of Revenue argued that the equipment was not exempt because it was used for excavation instead of manufacturing. The court rejected this argument, finding under the exemption statute that integrated production operation includes preproduction operations to handle, store and treat raw materials. The statute also states that machinery and equipment is considered to be used as an integral or essential part of an integrated production operation if it is used to “receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line.” The court found that the equipment was used at the physical location of the manufacturing facility, which is required by the exemption. The land on which the equipment was used was part of a single, contiguous, fixed location owned by the taxpayer. The court found that the legislative intent of the exemption statute was for the defined boundaries of a manufacturing or processing plant or facility to extend past the area immediately around the production line in cases such as this, where there are contiguous areas at a single, fixed location where integrated production operations occur. The court rejected the department of revenue’s argument to apply the doctrines of operative construction and strict construction. The court declined to afford judicial deference to the department of revenue or to construe the exemption strictly in favor of imposing sales tax. The court found that unreasonable statutory interpretation should be avoided and that legislative intent must be ascertained. (In the Matter of the Appeal of LaFarge Midwest/Martin Tractor Co., Inc., Kansas Supreme Court, No. 102,852, March 2, 2012)

(04/20/2012)

Kansas enacted legislation that amends the sales and use tax exemption for tangible personal property and services purchased for the purpose of the construction, reconstruction, enlargement, or remodeling of a business or retail business meeting the requirements of the Kansas Enterprise Zone Act (KEZA). The legislation also amends the sales and use tax exemption for sales and installations of machinery and equipment purchased for installation at any such business. The amendments provide that project exemption certificates previously issued by the Kansas Department of Revenue under KEZA before January 1, 2012 that haven’t expired will be effective for the term of the project or for two years from the effective date of the certificate, whichever is shorter. Project exemption certificates submitted to the department before January 1, 2012 and that are found to qualify will be issued a project exemption certificate effective for two years or for the term of the project, whichever is shorter. (S.B. 196, Laws 2011, effective July 1, 2011)

(04/20/2012)

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