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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)

South Dakota Governor Dennis Daugaard signed an “affiliate nexus” bill into legislation as well as legislation regarding remote-seller reporting requirements. Under the new “affiliate nexus” law, a retailer is considered to be selling tangible personal property, services, and products transferred electronically for use in South Dakota if they hold a substantial interest in, or are owned by, a South Dakota retailer and the retailer sells the same or a substantially similar line of products under the same or a similar business name, or the in-state facility/employee is used to advertise, promote, or facilitate sales to a South Dakota consumer. The same goes if the retailer holds a substantial ownership interest in or is owned by a business maintaining a distribution house, sales house, warehouse, or similar place of business in South Dakota that delivers items sold by the retailer to consumers. The legislation also states that the electronic processing of orders does not relieve a retailer doing business in South Dakota of its responsibility to collect tax from the purchaser. The legislation also creates a rebuttable presumption that any retailer that is part of a group with a component member that is a retailer in South Dakota is also considered to be a retailer in South Dakota. In addition, any retailer making sales to South Dakota customers by mail, telephone, internet, or other media that has a contract with an entity to perform installation, maintenance or repair services for the retailer’s purchasers in South Dakota is included in the definition of “retailer.” The other bill that the Governor signed into legislation requires that out-of-state retailers that sell tangible personal property, services, or products transferred electronically for use but aren’t registered to collect and remit sales and use tax must notify customers that they must pay and report South Dakota use tax on their purchases. The notice must be readily visible. The following information must be included on the notice: the retailer is not required to and does not collect South Dakota sales and use tax, the purchase is subject to South Dakota use tax unless specifically exempt, the purchase is not exempt because it’s purchased on the internet, by catalog or by other remote means, the state requires the purchaser to report any non-taxed purchase and to pay use tax on the purchase, and the tax may be reported and paid on the South Dakota use tax form, which is available on the South Dakota Department of Revenue and Regulation website. The notice must appear on a page necessary to facilitate the applicable transaction. De minimis retailers and online auction websites are exempt from the reporting requirements. To qualify as de minimis, retailers and online auction websites must have total gross sales in South Dakota in the prior calendar year of less than $100,000 and reasonably expect that South Dakota sales in the current calendar year will be less than $100,000. (S.B. 146, Laws 2011, effective July 1, 2011; S.B. 147, Laws 2011, July 1, 2011)

(06/24/2011)

Effective July 1, 2009, South Dakota amends taxation provisions to specifically apply the state’s tax on gross receipts to all intrastate, interstate, and international telecommunications services that originate and terminate in South Dakota, or that originate or terminate in the State if also billed to a South Dakota service address. Additionally, a new privilege tax of 4% will be applied to the use of “ancillary services”, which are defined as services associated with or incidental to the provision of telecommunications services, such as detailed billing, directory assistance, vertical assistance, and voice mail services, which are defined in the bill. (H.B. 101, Laws 2009, effective as noted above)

(06/29/2009)

The South Dakota Supreme Court found the owners of a self-storage facility not liable for sales tax. The South Dakota Department of Revenue argued that the taxpayer’s business qualified as warehousing and storage, a taxable service under statutory tax law. The Court, however, found that the taxpayers did not engage in the service of warehousing and storing goods, but rather simply rented space to tenants, which alone did not qualify as a taxable service. (In the Matter of the Sales Tax Liability of James Primantgen & Patricia Carlson, South Dakota Supreme Court, No. 24758, December 23, 2008)

(04/03/2009)

Effective July 1, 2008, South Dakota revised provisions apply sales and use tax to all sales, leases, or rentals of any product transferred electronically if (1) the sale is to an end user, (2) the sale is to a person who is not an end user, unless otherwise exempted, (3) the seller grants the right of permanent or less than permanent use of the products, or (4) the sale is conditioned or not conditioned upon continued payment. (2008 SD H 1017, Enacted, February 20, 2008).

(03/30/2008)

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