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

On July 14, 2016, Rep. Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016.  Taking the opposite approach of the Marketplace Fairness Act and Remote Transactions Parity Act, this proposed bill would limit the ability of states to require remote sellers to collect use tax. If enacted, the Act would codify the physical presence requirement established by the US Supreme Court in Quill Corp v. North Dakota.  The bill would define physical presence and create a de minimis threshold. If enacted, the bill would preempt click-through nexus, affiliate nexus, reporting requirements and marketplace nexus legislation. The bill would be effective as of January 1, 2017. The bill defines “seller” and provides that states and localities may not:


  • Obligate a person to collect a sales, use or similar tax; 
  • Obligate a person to report sales; 
  • Assess a tax on a person; or 
  • Treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.


Persons would be considered to have a physical presence only if during the calendar year the person: 


  • Owns or leases real or tangible personal property in the state; 
  • Has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or 
  • Maintains an office in-state with three or more employees for any purpose.


Physical presence would not include: 


  • Click-through referral agreements with in-state persons who receive commissions for referring customers to the seller; 
  • Presence for less than 15 days in a taxable year; 
  • Product delivery provided by a common carrier; or 
  • Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.


The bill defines seller to exclude marketplace providers; referrers; third-party delivery services in which the seller does not have an ownership interest; and credit card issuers, transaction or billing processors or financial intermediaries.Marketplace Providers are defined as any person other than the seller who facilitates a sale which includes listing or advertising the items or services for sale and either directly or indirectly collects gross receipts from the customer and transmits the amounts to the marketplace seller. (No Regulation Without Representation Act of 2016 (H.R. 5893))


UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.


Missouri has held that a computer company didn’t qualify for the state’s manufacturing exemption from use tax on the sales of software and equipment to a credit card company since the credit card company’s activities were not manufacturing activities. The state’s manufacturing exemption is available for purchases when the customer uses or consumes the equipment during the manufacture of a product. The purchaser used the software and equipment to transmit approvals and disapprovals of credit card transactions and summarize credit card transactions each day. The Missouri Supreme Court ruled that receiving and analyzing information then relaying the analysis to customers is not manufacturing for purposes of the exemption.The fact that the calculations were done using sophisticated hardware and software does not change the fact that the activity is not “manufacturing.” Since the taxpayer is attempt to take advantage of an exemption, it must be narrowly and strictly be interpreted according to its plain and ordinary meaning.  Manufacturing must result in the alteration or physical change of an object or material in such a way that produces an article with a use, identity and value different from the use, identity and value of the original.  This does not occur in the approval of credit.  (IBM Corp. v. Dept. of Revenue, Missouri Supreme Court, No. SC94999, April 5, 2016)


A taxpayer was entitled to a refund of Missouri use tax it paid on catalogs that it printed and mailed from outside the state to customers in Missouri because the taxpayer did not use the catalogs in Missouri. In Missouri, use tax is imposed on the storage, use or consumption of tangible personal property in the state. Mailing catalogs from another state into Missouri is not the exercise of any right or power over the catalogs incident to the taxpayer’s ownership or control over them. The taxpayer exercised that power outside of Missouri when it caused the catalogs to be printed and mailed to particular customers in Missouri. Once the catalogs entered Missouri, the taxpayer did not take any action in regard to its ownership or control of the catalogs. As a result, the taxpayer was entitled to a refund of the use tax it paid on the catalogs.This case follows a prior decision - May Dep't. Stores Co. v. Dir. of Revenue, 748 S.W.2d 174, 175 (Mo. banc 1988).  This finding may also apply to complimentary samples or other items shipped into Missouri from outside of Missouri at no charge to the customer.  A key point in the decision was that Office Depot never had control or possession over the property. Use of an in-state independent agent would have resulted in tax being due.  (Office Depot, Inc. v. Director of Revenue, Missouri Supreme Court, No. SC95029, April 5, 2016)


On February 11, 2016, the U.S. Senate approved a permanent extension of the Internet Tax Freedom Act (ITFA) that is included in H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill also establishes an end date of June 30, 2020 for the seven states that currently impose a tax on internet access: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. President Obama is expected to sign the permanent extension of the ITFA into law. The House of Representatives had previously passed H.R. 235, the Permanent Internet Tax Freedom Act, on December 15, 2015.  For our previous news item on this topic, visit Internet Tax Freedom Act Extended Through October 1, 2016.


UPDATE: On February 24, 2016, President Barack Obama signed into law the permanent extension of the Internet Tax Freedom Act.


(Trade Facilitation and Trade Enforcement Act of 2015)


On December 18, 2015, President Barack Obama signed H.R. 2029 – Consolidated Appropriations Act, 2016. The Act extends the Internet Tax Freedom Act (ITFA) through October 1, 2016. Prior provisions that grandfather taxes that existed prior to October 1, 1998 are also extended through October 1, 2016. For our previous news item on this topic, see Internet Tax Freedom Act Extended Until December 11, 2015. (H.R. 2029 – Consolidated Appropriations Act, 2016)



Scroll to Top