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Kentucky Governor Steve Beshear has signed a bill that requires out-of-state retailers not required to collect Kentucky use tax who again expect less than $100,000 in gross sales to Kentucky residents and businesses in the current calendar year to provide notice in their retail catalogs and on their retail websites, online auction websites, and invoices and similar documents that purchasers of nonexempt tangible personal property or digital property for storage, use, or other consumption in Kentucky must report and pay use tax on the property to the Kentucky Department of Revenue. The use tax notice must be readily visible. Retailers are prohibited from stating or implying on their websites or in their catalogs that there is no Kentucky tax due on purchases made from the retailer. The notification must contain the following statements: "The retailer is not required to and does not collect Kentucky sales or use tax."; "The purchase may be subject to Kentucky use tax unless the purchase is exempt from taxation in Kentucky."; "The purchase is not exempt merely because it is made over the Internet, by catalog, or by other remote means."; and "The Commonwealth of Kentucky requires Kentucky purchasers to report all purchases of tangible personal property or digital property that are not taxed by the retailer and pay use tax on those purchases unless exempt under Kentucky law. The tax may be reported and paid on the Kentucky individual income tax return or by filing a consumer use tax return with the Kentucky Department of Revenue. These forms and corresponding instructions may be found on the Kentucky Department of Revenue's Internet Web site."Retailers may provide a prominent reference to a supplemental page or electronic link that contains the required notification language. In this case, the referring language must state "See important Kentucky sales and use tax information regarding tax you may owe directly to the Commonwealth of Kentucky."Retailers can provide a consolidated notice meeting the above notice requirements if they are required to provide a similar use tax notification for another state.The provisions of the bill take effect on July 1, 2013.(H.B. 440, Laws 2013, effective as noted)

(05/23/2013)

The Franklin County Circuit Court in Kentucky rejected a challenge by Kemper Insurance Companies to the state’s new unclaimed property law. Kemper immediately filed a notice of appeal. The decision upholds a law enacted by Kentucky last year that requires life insurance companies to check their lists of insureds against the Social Security Administration’s Death Master File in an effort to locate more owners (beneficiaries). Industry practice has not been deemed to have been utilizing all publicly available data in their search for an owner process. (United Ins. Co. of Am. v. Kentucky (Ky. Cir. Ct. April 1, 2013))

(05/23/2013)

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)

Kentucky has enacted legislation that authorizes the Department of Revenue to conduct a tax amnesty program during fiscal year 2012-2013. A tax amnesty program will be held during the fiscal year ending June 30, 2013, for a period of 60 to 120 days. The program will be available to all taxpayers owing taxes, penalties, fees, or interest subject to the administrative jurisdiction of the department, with the exception of the following: ad valorem taxes levied on real property pursuant, ad valorem taxes on motor vehicles and motorboats collected by the county clerks, ad valorem taxes on personal property levied pursuant to KRS Ch. 132 that are payable to local officials, and any penalties imposed under KRS 131.630 or 138.205 (pertaining to cigarettes). The program will apply to tax liabilities for taxable periods ending or transactions occurring after December 1, 2001 and prior to October 1, 2011. Under the program, taxpayers are required to pay the full amount of tax due plus 50% of the interest due. Taxpayers are also required to file all tax returns when due and make all tax payments when due for three years following the date that amnesty is granted. Full payment must be made upon application, and any additional tax must be paid within 30 days of notification by the department. The department may allow installment payments in cases of severe hardship. Full rates of interest would apply to installment payments, and all required payments under such a plan must be made by May 31, 2013. Amnesty will be invalidated for taxpayers failing to make payment as required under the program.

Once the amnesty period expires, the following cost-of-collection fees will be imposed: 25% on all taxes that are or become due to the department for any reporting period, regardless of when due; 25% on taxes that are assessed and collected after the amnesty period for taxable periods ending or transactions occurring prior to October 1, 2011; and for any taxpayer who failed to file a return for any previous tax period for which amnesty is available and fails to file the return during the amnesty period, 50% of any tax deficiency assessed after the amnesty period. Additionally, once the amnesty period expires, an amnesty-eligible tax liability that is still unpaid and not covered by an installment plan will accrue interest at a rate that is 2% higher than the otherwise applicable rate. Based on these post amnesty “penalties,” all taxpayers (registered and unregistered) should closely evaluate any potential tax underpayment and file under amnesty to reduce the risk of 25% to 50% penalties as well as the additional interest costs.

UPDATE: The Kentucky Finance and Administration Cabinet announced on September 20, 2012 that the tax amnesty program will be held between October 1 and November 30, 2012. Delinquent taxpayers will receive mailed notifications indicating the known amount of back taxes and will have until November 30 to apply for amnesty and pay overdue taxes. Taxpayers taking advantage of amnesty must remain current for the next three years. (H.B. 499, Laws 2012, effective April 11, 2012, and as noted; Press Release, Kentucky Finance and Administration Cabinet, September 20, 2012)

(09/25/2012)

Kentucky enacted legislation expanding the Incentives for Energy Independence Act credit program to include the in-state portion of a carbon dioxide transmission pipeline used exclusively for the purpose of transporting carbon dioxide to a point of sale, storage, or other carbon management applications. Eligible taxpayers can claim the credit against the Kentucky corporation income tax, limited liability entity tax, personal income tax, sales and use tax, and severance tax. To qualify to claim the credit, a maximum capital investment of $50 million must be made for a carbon dioxide transmission pipeline. A maximum of 50% of the capital investment may be claimed as a credit against 100% of the state income tax and limited liability entity tax attributable to the project; 100% of the sales and use tax paid to purchase tangible personal property for the project; 80% of the severance tax paid for coal or natural gas used in the project; and 4% of the gross wages of each employee whose job is created as a result of the project. An approved company is eligible to receive an advance disbursement of the credits based on the estimated labor component of the total capital investment and the use of Kentucky residents in the construction project. (S.B. 50, Laws 2011, effective June 8, 2011)

(05/21/2012)

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