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A Pennsylvania court has reaffirmed its decision that a provider’s sales of network infrastructure services to retail Internet service providers (ISPs) constitute Internet access services and are therefore tax-exempt. The court had previously held that the provider’s facility was a Point-of-Presence (PoP) that enabled ISPs to access the Internet, and its services were Internet access services exempt from sales and use tax under the Federal Internet Tax Freedom Act. The Commonwealth argued that the provider’s services constituted a technological advancement to taxable telecommunications services. The Commonwealth also argued that the provider was not providing internet access services because it always delivered end users to an ISP homepage and that the ISP, not the taxpayer, enabled end users to connect to the Internet. The court reaffirmed its prior finding that the technological differences between taxable telecommunications services and the provider’s network infrastructure services related to what services were provided, not how the services were provided. The court also reaffirmed that the provider’s PoP provided the access point for ISP end users to establish an Internet connection. As a result, the provider’s services remain exempt from Pennsylvania sales and use tax. (Level 3 Communications, LLC v. Commonwealth, 166 F.R. 2007 (Pa. Cmwlth. Dec. 8, 2016))


The Pennsylvania Department of Revenue has issued a legal letter ruling stating that for purposes of Pennsylvania sales tax, the vehicle value paid to car owners under the buyback or restitution provisions of a motor vehicle class action settlement agreement cannot be deducted from the purchase price of a new vehicle.Under the buyback program in question, the vehicle manufacturer will purchase an eligible vehicle from the owner and pay the vehicle value, which the owner may or may not choose to apply to the purchase of a new vehicle. Per Pennsylvania tax law, the purchase price of a new vehicle may be deducted by the amount of a trade-in allowed on the purchase if the trade-in occurs at the same time of the sale. Unlike a trade-in with a car dealership, the vehicle is not purchased by the dealership, but rather by the manufacturer under the buyback program. The buyback is considered a separate or independent sale rather than a trade-in. As a result, the purchase price of a new vehicle cannot be reduced by the vehicle value, even if it is immediately applied to the purchase of the new vehicle. Similarly, an owner restitution payment is not considered a trade-in. 


Under Pennsylvania's Automobile Lemon Law, if a manufacturer fails to repair or correct a nonconformity after a reasonable number of attempts, a purchaser may request the manufacturer either to replace the vehicle with a comparable motor vehicle of equal value or to refund the vehicle's full purchase price including the Pennsylvania sales tax. The manufacturer can then file for a refund of the sales tax paid to the customer as part of the refund. Under the buyback program, the manufacturer agrees to purchase the vehicle from owners and to pay the vehicle value, not to replace the vehicle. The vehicle value is not the purchase price of the vehicle that the owner paid. The same goes for an owner restitution payment. As a result, neither the buyback or restitution payment are considered a vehicle replacement or refund under Pennsylvania's Automobile Lemon Law. (Legal Letter Ruling No. SUT-16-003, Pennsylvania Department of Revenue, December 5, 2016)


On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)


Pennsylvania has enacted legislation subjecting digital goods to sales and use tax. Effective August 1, 2016, sales and use tax is imposed on downloaded videos, photographs, books, any otherwise taxable printed matter, apps, games, music, any other audio (including satellite radio service), canned software, and any other otherwise taxable tangible personal property electronically or digitally delivered, streamed, or accessed. These items are subject to sales and use tax as tangible personal property and are considered tangible personal property whether they are electronically or digitally delivered, streamed, or accessed and whether they are purchased singly, by subscription, or in any other manner, including maintenance, updates, and support.(Act 84 (H.B. 1198), Laws 2016)


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.



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