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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)

In a petition filed on February 11, 2011, the Streamlined Sales and Use Tax (SST) Business Advisory Council (BAC) stated that Nebraska is not in compliance with the SST Agreement due to its taxation of electronic mailing lists. The BAC states that the SST Governing Board made an error during their 2010 certification review of Nebraska. Since Nebraska includes the sale or use of electronic mailing lists as tangible personal property and taxes accordingly, they are out of compliance with the SST Agreement. The Agreement indicates that a member state may not include any product transferred electronically (except for specific exclusions) in its definition of tangible personal property. Electronic transfers can be taxed under the Agreement by separate imposition or as a service. According to the BAC, the state’s sales tax treatment of electronic mailing lists is based on a 2002 Nebraska Supreme Court opinion that treats sales of online data as sales of tangible personal property for purposes of corporate income tax. The BAC states that that court decision doesn’t apply to sales tax. Also, the SST Agreement does not allow for grandfather provisions. As a result, the BAC states that Nebraska should have been found out of compliance with the Agreement in the 2010 review. The Issue Resolution Committee will schedule a hearing on the petition and will issue a recommendation to the board after hearing arguments. (Petition for Resolution and Reconsideration, Business Advisory Council, February 11, 2011)

(12/13/2011)

Nebraska has enacted legislation to conform its sales and use tax laws to the Streamlined Sales and Use Tax (SST) Agreement. The sales and use tax applied to lease and rental payments of motor vehicles is now sourced to the primary property location associated with the lease payment. Lease payments were previously taxed based on the rate in effect when the vehicle was delivered to the lessee. For sourcing purposes, “advertising and promotional direct mail” is now distinguished from “other direct mail.” The former term means direct mail that has the primary purpose of attracting attention to a product, person, business, or organization or attempting to sell or secure financial support for one of the above. The default sourcing option for “advertising and promotional direct mail” remains the shipping point. If a purchaser fails to provide a direct pay permit or a list of jurisdictions for delivery, “other direct mail” will be sourced to the purchaser’s address. To conform to the Agreement, the terms “prepared food” and “food and food ingredients” now replace “meals” and “food products” for exemptions provided to certain schools, churches, hospitals, and government organizations. The amendment doesn’t change the taxation of food items. (L.B. 211, Laws 2011, effective October 1, 2011)

(08/19/2011)

The Nebraska Advantage Act has been amended to include the research, development, and maintenance of a data center as an investment eligible for the sales and use, income, and personal property tax incentives available under the Act. For purposes of the legislation, a data center means a group of computers, supporting equipment, and other organized assembly of hardware or software in one or more interrelated physical locations that is designed to centralize the storage, management, or dissemination of data or information. Further, the sale of electronically-delivered software development systems, product testing services, computer and other system design, or licensing of technology now qualify as eligible investment activities, regardless of where the computer storing the software or data is located, provided certain conditions are met. (L.B. 918, Laws 2010, effective three months after adjournment of the 2010 Legislature)

(05/04/2010)

The Nebraska Department of Revenue has issued an information guide reminding retailers that Nebraska law prohibits retailers from advertising or implying in any way that the sales tax will be assumed or absorbed by the retailer or not added to the selling price. Retailer are required to pass on to their customers the full amount of the sales tax, which must be stated on the customer’s invoice and collected as an item separate and district from the sales price. Examples of prohibited language include “Tax-Free Sale”, “Pay No Sales Tax”, “Purchases Will Be Discounted By the Amount of the Sales Tax”, “Sales Tax Stimulus Sale”, “We Will Pay Your Sales Tax”, and “Tax Credit Sale”. Retailers may contact the Department prior to conducting an advertising campaign to ensure the advertisement does not violate any statuary provisions. (Information Guide 6-493-2010, Unlawful Advertisements Referring To Sales Tax, Nebraska Department of Revenue, March 22, 2010)

(04/15/2010)

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