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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)

Ohio has passed sales and use tax legislation expanding the scope of a taxable sale and making other changes in anticipation of its application for full member status under SSTP. The current sales tax exemption for water bought for residential use is also harmonized with the definition of sales tax-exempt "food," which includes bottled water, distilled water, mineral water, carbonated water, and ice. To comply with notification requirements under SST, the commissioner is required to notify all vendors and sellers when local sales tax rates change due to a change in a county's jurisdictional boundaries or a transit authority's territory. Previously, the commissioner was only required to notify those registered through the Streamlined Sales Tax Central Electronic Registration System. Additionally, vendors making sales from a printed catalog are not required to apply changes in local sales tax rates that differ from those in the catalog until the beginning of a calendar quarter following 120 days after the commissioner notifies the vendors of the rate change. Previously, this applied only to catalog vendors registered under the Streamlined Sales Tax Central Electronic Registration System. The Tax Commissioner is allowed to cancel a vendor's license if the vendor fails to notify the commissioner that the location of its place of business has changed or that its business has closed and ordinary mail sent to the address on the vendor's license is returned as undeliverable. The legislation eliminates the "service vendor" and "delivery vendor" categories of sales tax vendor licenses. The commissioner retains the authority to create specific classes of vendor licenses. The bill also requires all vendors to display their vendor licenses at their places of business. Additional changes include amending the definition of taxable sales to include the transfer of ownership interests in a pass-through entity if the entity is not engaged in business and its sole assets are boats, planes, motor vehicles, or other recreational property used primarily by the entity’s owners. (H.B. 508, Laws 2012, effective September 6, 2012; Bill Analysis, Ohio Legislative Service Commission)

(08/17/2012)

Ohio Governor John R. Kasich has signed legislation approving a tax amnesty program that will run from May 1, 2012 to June 15, 2012. The program will apply to taxes which were due and payable as of May 1, 2011. The amnesty program will apply to corporate franchise tax, commercial activity tax, estate tax, state and local taxes, including sales and use taxes, motor fuel taxes, cigarette taxes, school district income taxes, and tangible personal property taxes. Under the program, taxpayers will be allowed to pay certain overdue taxes including half of any accrued interest without incurring fines or civil or criminal penalties. Qualifying taxes do not include any tax for which a notice of assessment or audit has been issued, for which a bill has been issued relating to any tax period that ends after the effective date, or for which an audit has been conducted or is being conducted.

There will be a separate consumer’s use tax amnesty program that will run from October 1, 2011 to May 1, 2013. If a participating consumer pays all use tax for which they have an outstanding liability on or after January 1, 2009 during the program, all delinquent use tax owed by the consumer before January 1, 2009 will be waived or abated. In addition, all applicable penalties and interest accrued before and after January 1, 2009 will be waived or abated. Taxpayers may only apply once during the program. Taxpayers who don’t qualify for the amnesty program may still qualify for the department’s voluntary disclosure program.

A no-interest payment plan is available for businesses not registered for consumer’s use tax as of June 1, 2011. The amount of use tax due must exceed $1,000. A minimum payment of $1,000 per month is required, and the payment period must not exceed seven years. At least one corporate officer, LLC member, or other guarantor for the company must agree to the payment plan terms and accept personal liability for the debt. Any additional guarantors must also agree to accept personal liability for the debt. The statute of limitations for assessment of consumer’s use tax under the payment plan must be waived by the business.

If the Ohio Tax Commissioner has issued an assessment against a consumer on or before the effective date, the consumer is not eligible to participate in the program. Any consumer that has registered with the Commissioner for the use tax on or before June 1, 2011 is not eligible to have interest or penalties due on use tax paid waived. Any consumer who does not take advantage of the amnesty program could be assessed taxes on purchases beginning January 1, 2008 plus all penalties and interest. Details on the consumer’s use tax amnesty program can be found on the Ohio Department of Taxation website. The website has a step-by-step guide to requesting amnesty as well as fact sheets on the application of use tax to construction contractors, manufacturers, retailers, and service providers. (H.B. 153. Laws 2011, effective July 1, 2011, applicable as noted; Consumer’s Use Tax Amnesty Program, Ohio Department of Taxation, August 24, 2011)

(10/24/2011)

An Ohio auto dealership is not entitled to a refund of sales tax paid on an automobile because it did not refund the entire purchase price to the customer upon the vehicle’s return. The vehicle was sold to, then returned by, a customer and traded in for a different vehicle. Upon the vehicle’s return, the dealership deducted $100 for mileage from the refund of the purchase price to the customer. The dealership claims that it should be refunded the sales tax as the purchase of the vehicle was voided and the sales tax was erroneously paid. However, in a previous Ohio court case, the ruling stated that a transaction is not treated as a return “if the vendor or seller deducts from the customer’s refund any amount for use, damage, or wear and tear of the merchandise returned.” That ruling required that the vendor refund the full purchase price in order to receive a refund of sales tax from the state. As such, the Board of Tax Appeals found that the dealership is not entitled to a refund of sales tax. (Destiny’s Auto Sales, LLC v. Levin, Ohio Board of Tax Appeals, No. 2008-M-1773, February 8, 2011)

(08/19/2011)

The Ohio Department of Taxation has introduced the Use Tax Education Program (UTEP) to work with Ohio businesses to understand and stay in compliance with use tax laws. The program offers financial incentives to businesses with use tax liability to pay what is owed. Businesses that should be registered to remit use tax but aren’t will be notified by UTEP that they need to register. Businesses can then register and begin remitting use tax on future purchases. In addition, the program will allow a business to enter into an agreement to clear up past unpaid use tax liabilities. Under the terms of the agreement, the business would pay use tax plus interest on untaxed purchases for the last four years or less, depending on when the business started. The business would also agree to register and remit use tax on purchases going forward. In the absence of fraud, the Department agrees to waive use tax liability for all years beyond the look-back period and waive the 15 percent penalty applicable to the unpaid use tax. The Department will start actively contacting businesses registered for other taxes but not use tax in the second half of 2011. Companies are encouraged to evaluate their potential liability and contact the Department to secure registration under the UTEP program. (Use Tax Education Program, Ohio Department of Taxation, January 28, 2011)

(03/14/2011)

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