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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)

The North Carolina Department of Revenue has announced a new program under which small businesses with outstanding sales and use, personal income withholding, or other trust taxes can qualify for waived fees and penalties and be eligible to enter into payment plans if they participate in a new Small Business Counseling Program. Businesses with 200 or less employees can qualify for the program and must agree to have a responsible corporate officer, LLC member or manager, or partnership partner attend small business counseling in North Carolina through the counseling services of several approved organizations. Taxpayers cannot participate if they are facing criminal charges, are the subject of a criminal investigation by the department at the time of application, or have defaulted on payments while participating in the Small Business Taxpayer Recovery Program or the Small Business Counseling Program. Fees and penalties may not be waived for tax periods associated with a prior criminal conviction. Taxpayers filing fraudulent returns will still be subject to criminal prosecution. The counseling provided is a confidential relationship between the business owner and/or management team and a professional business advisor, whose role is to help analyze the current business situation, identify improvement opportunities, and provide recommendations for planning and implementing improvements.  Interested business owners can contact the department at (877) 252-4549 or visit one of the department’s service center locations. (State Launches Second Program to Help Small Businesses with Trust Taxes, North Carolina Department of Revenue, February 28, 2013)

(03/26/2013)

The North Carolina Department of Revenue has issued a notice clarifying the sourcing provision applicable to sales of certain digital property and computer software delivered electronically. When the delivery address is unknown and the seller is unable to determine the purchaser’s address, the seller should source the sale to the location from which the digital property or computer software delivered electronically was first available for transmission by the seller. (Important Notice: Sourcing of Digital Property and Computer Software Delivered Electronically, North Carolina Department of Revenue, November 2011)

(12/13/2011)

Effective July 1, 2011, North Carolina’s general sales and use tax rate will decrease to 4.75%. The rate – previously 5.75% - applies to sales and purchases of tangible personal property, certain digital property and certain services. Local tax rates still apply and should be added to the new rate to determine the combined tax rate. Effective July 1, 2011, gross receipts derived from providing telecommunications service, ancillary service, and video programming in state and sales of spirituous liquor (other than mixed beverages) are subject to a combined general rate of 7% for transactions in North Carolina. Taxpayers filing Sales and Use Tax Returns should use the 4.75% rate on existing returns. Taxpayers filing a Utility and Liquor Sales and Use Tax Return should report the tax liability on existing returns. New returns are not being printed until 4th Quarter. (Important Notice: State Sales and Use Tax Rate Decrease Effective July 1, 2011, North Carolina Department of Revenue, June 16, 2011)

(06/30/2011)

A North Carolina electric membership corporation (EMC) was granted a refund of franchise and sales and use taxes paid on sales of electricity as they were deemed exempt under a special act enacted by the North Carolina Legislature over 35 years ago. At the time the special act was passed, another act withdrew public agency status for all other EMCs, exposing them to state and local taxation. As the EMC in question was the sole provider of electricity to residents of a remote island, the special act continued its status as a public agency. The North Carolina Department of Revenue (DOR) did not impose taxes on the EMC for over 35 years. However, the DOR began assessing sales taxes against the EMC after an amendment was made to a sales tax provision requiring all electricity suppliers to remit sales tax on sales of electricity. In addition, the DOR imposed a franchise tax against the EMC, claiming that the special act only provided an exemption for property taxes. The North Carolina Court of Appeals rejected the DOR’s position, stating that the legislative history of the act clearly indicated that the Legislature intended for the EMC to be exempt from franchise and sales and use taxes. The court also rejected the DOR’s position that its current interpretation of the law should take precedence, stating that the DOR’s previous recognition of the exemption was adapted at the time the statute was enacted and was therefore a more reasonable interpretation. The court also rejected the DOR’s position that the EMC shouldn’t be refunded the sales tax as it didn’t demonstrate that it had refunded or credited the tax to the purchasers of the electricity as required by statute. The court stated that the statute in effect when the EMC instituted the refund didn’t impose that requirement, clearing them of any such obligation. The DOR is required to grant a refund of franchise and sales and use taxes paid with interest to the EMC. (Cape Hatteras Electric Membership Corp. v. North Carolina Department of Revenue, North Carolina Court of Appeals, No. COA10-271, March 1, 2011)

(04/19/2011)

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