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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)

A 1992 Minnesota Revenue Ruling has been modified to state that effective February 22, 2010, the renting and furnishing of laundered items on a one-time basis is considered a linen supply service, instead of a rental of tangible personal property. Since Minnesota Statutes provide an exemption for materials used in providing laundry and dry cleaning services, such as solvents, detergents, plastic bags, and hangers, the materials used or consumed in the provision of the one-time service, including materials used to launder or maintain the items being rented or furnished, are now exempt. (Modification of Revenue Notice No. 92-24, Minnesota Department of Revenue, February 22, 2010)

(04/01/2010)

The Minnesota Department of Revenue has amended its rules on food, drinks, and meals; sales to exempt entities; and charitable, religious, and educational organizations. These amendments are temporary and will expire in November 2011.

The rule for food, drinks, and meals will now apply to prepared food, candy, and soft drinks. In addition, retailers of prepared food, candy, or soft drinks, including but not limited to restaurants and fast food establishments, must pay the tax on all purchases of equipment and products used or consumed in the business, including fixtures and reusable items such as linens, flatware, glassware, and towels. References to “meal and lunches” were changed to “prepared food, candy, and soft drinks” and the definition of “meals and lunches” was removed.

The rule on meals, admissions and lodging to exempt entities was changed to prepared food, candy, or soft drinks, or the furnishing of lodging to governmental entity, hospital, surgical center, or nonprofit organization. Under this rule, no sales and use tax exemption is allowed for meals, admissions, prepared food, candy, or soft drinks purchased by, or lodging furnished to, governmental entities, hospitals and surgical centers, or nonprofit organizations even if the entity is billed directly and pays directly for such services. This exclusion does not apply to the federal government, its agencies, and instrumentalities that purchase meals and prepared food, candy, soft drinks, or lodging directly.

(Minnesota State Register, Vol. 34, No. 20; Rules 8130.4700, 8130.5700, and 8130.6200, Minnesota Department of Revenue, effective as noted)

(01/21/2010)

A taxpayer, that sells and installs carpets and floor coverings, was found liable for use tax on its purchases of materials for contracts with exempt entities. Under the contracts in question, the taxpayer would purchase the materials and install them for the exempt entities. Therefore, it was the Commissioner’s position that the taxpayer was acting as a contractor when it installed the carpeting and responsible for use tax on the materials being installed in the absence of a properly executed purchasing agent agreement. Minnesota law provides that if the exempt entity purchases materials directly, that purchase is exempt from taxation, but a purchase by a contractor for use in an improvement to the tax exempt entity's real property is taxable.

The only way in which purchases by a contractor or subcontractor would be exempt from sales tax would be if there is a written contract, separate from the contract for installation, in which the contractor is appointed the purchasing agent and title and responsibility for the materials remains with the exempt entity. In addition, the construction contract can not be a lump sum contract or similar type of contract with a guaranteed maximum price covering both materials and labor.” A contractor may be appointed a purchasing agent only if the exempt entity initially advertises separate bids for material and labor. (Neil’s Floor Covering, Inc. v. Commissioner of Revenue, Minnesota Tax Court, No. 8016, October 20, 2009)

(12/10/2009)

A Minnesota revenue notice on exemption certificates has been revoked because there is already a statute that specifically provides the content and form of allowable exemption certificates, as well as the means of identification that are allowed when the purchaser does not have a Minnesota tax identification number. (Revenue Notice No. 09-06, Minnesota Department of Revenue, June 15, 2009)

(06/29/2009)

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