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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)

Sales of services by a waste management consulting service to a governmental waste authority for resale were determined to be deductible from New Mexico gross receipts for sales and use tax purposes.  The sales were tax exempt because the consulting service provider received a nontaxable transaction certificate (NTTC) from the authority who was subject to the Government gross receipts tax on its sales of garbage collection services.  It was determined that the services sold did not need to be identical to the services sold by the authority. Sales of a service for resale are exempt from sales and use tax if the buyer delivers an NTTC to the seller, and the buyer resells the service in the ordinary course of business. The services sold on the second transaction do not need to be identical to the services purchased in the first transaction. The services provided by the consulting service included managing the authority’s day-to-day operations, collecting trash, and operating a landfill. The authority sold trash collection services to its customers. The sales of services by the consulting service to the authority were tax exempt because the consulting service received and accepted the NTTC in good faith from the authority. (In the Matter of the Protest of Southern Oasis, Inc., New Mexico Taxation and Revenue Department, No. 13-06, March 6, 2013)

(03/26/2013)

An out-of-state company that sells licenses to use its online database to New Mexico customers is subject to gross receipts tax on the sales. License to use qualifies as taxable intangible property.  In this case, New Mexico customers buy licenses to use software programs online from the provider. Additionally, the provider’s sales of licenses to government entities or exempt education institutions are subject to gross receipts tax. However, the provider’s receipts from performing consulting and analyst services outside New Mexico are exempt from New Mexico gross receipts tax.  Receipts from selling services performed outside New Mexico are exempt from New Mexico gross receipts tax even if the product of such services is initially used in New Mexico.(Ruling No. 401-13-1, New Mexico Taxation and Revenue Department, January 31, 2013)

(02/25/2013)

The New Mexico Taxation and Revenue Department has updated its guidance on nontaxable transaction certificates (NTTCs). Effective April 7, 2011, sellers of tangible personal property for resale may support their gross receipts tax deductions for a sale with evidence other than an NTTC, including the use of the MTC Uniform Sales & Use Tax Certificate and the Border State Uniform Sales for Resale Certificate as specified in a department- issued rule. (FYI-204, Nontaxable Transaction Certificates, New Mexico Taxation and Revenue Department, July 2011; Bulletin B-200.14, Nontaxable Transaction Certificates Categories, New Mexico Taxation and Revenue Department, July 2011)

(05/21/2012)

In response to an inquiry by a New Mexico state legislator, the Attorney General of New Mexico has ruled that granting amnesty to a seller under the Streamlined Sales and Use Tax Agreement (SSUTA) for New Mexico gross receipts taxes owed on sales made during the period the seller was not registered in the state would violate the New Mexico Constitution. Granting amnesty to the seller would constitute a subsidy to the seller’s business, in violation of the Anti-Donation clause of Article IV of the state constitution. The state may not confer something of value to a private entity or individual without receiving something in return. Additionally, Article IV prohibits diminishing or extinguishing an obligation already incurred and owed to the state. The gross receipts tax on goods and services is an obligation that the state constitution prohibits the state from excusing, either through legislation or agreement. New Mexico is not currently a member of SSUTA. (Opinion No. 12-01, New Mexico Attorney General, January 9, 2012)

(05/21/2012)

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