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On April 27, 2017, a bipartisan group of senators introduced the Marketplace Fairness Act of 2017 (MFA). Similar legislation was introduced in both 2013 and 2015 and failed to be enacted both times. If enacted, the legislation would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. The small seller exception is set again at $1 million of remote sales annually. The only other significant change from the 2015 version is a prohibition of making the effective date during the 4th quarter of the calendar year. For information on the previous versions of the bill, visit Senate Introduces Marketplace Fairness Act of 2015.  

 

On April 27, 2017, a bipartisan group of lawmakers introduced the Remote Transactions Parity Act (RTPA) of 2017. Similar legislation was introduced in 2015 but failed to be enacted. Like the MFA, the legislation would also create sales and use tax collection obligations for remote sellers, but has some differences and additional provisions. Some key differences from the Marketplace Fairness Act include a different definition of a small seller.  The RTPA has a phased in threshold starting at $10million in year one, then $5million, then $1million.  In year 4, there is no threshold.  In addition to the monetary thresholds, any seller that sells on an electronic marketplace is considered a small seller.  A difference from the 2015 version of the bill is an inclusion of a definition of remote seller which specifies when a company is NOT a remote seller which includes physical presences for more than 15 days in a state, leasing or owning real property and using an agent to establish or maintain the market in a state if the agent does not perform business services in the state for any other person during the taxable year.  For more information on the Remote Transaction Parity Act of 2015, visit House Introduces Remote Transactions Parity Act of 2015. (Marketplace Fairness Act of 2017, Remote Transactions Parity Act of 2017)

(05/04/2017)

A web security services company was not liable for Texas sales tax on sales of digital (SSL) certificates which allowed customers to establish secure, encrypted connections over the Internet. The company would authenticate a customer’s identity then issue a digital certificate that contained the customer’s public key and metadata. The customer could put the digital certificate on its web server. The digital certificates did not fall within the definition of a taxable computer program since they did not provide a set of coded instructions designed to process data or perform a task. The digital certificates represented an intangible. Since the digital certificate was not computer software or other tangible personal property, it was not subject to tax. The company’s service of verifying the identity of a customer and providing a digital certificate did not constitute a taxable data processing service since the company was not compiling and producing records of transactions, maintaining information, or entering and retrieving information. While an end user’s web browser could use the public key contained in a customer’s digital certificate to encrypt communications (which is considered data processing), the encryption and decryption was not performed by the company but by software built into the end users’ web browsers. The company’s authentication services, provision of digital certificates, and resolution services were not taxable as information services, since the company was not furnishing general or specialized news or other current information. The services also did not fall under the definition of a telecommunications service.(Letter No. 201608960L (PLR #152600379), Texas Comptroller of Public Accounts, August 19, 2016)

(09/28/2016)

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)

(09/08/2016)

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.

(08/23/2016)

Electronic bill pay services provided by a taxpayer to banks for use by the bank’s customers were determined to be nontaxable professional services rather than taxable data processing services for purposes of Texas sales tax. Through use of the taxpayer’s portal, bank customers could make payments, view pending payments, add payment recipients and perform other tasks related to bill payment. The taxpayer’s services to banks included conducting a credit check on users, executing payments as instructed by users, determining the method of payment, using ACH processing to execute the payment debits and credits, and providing paper checks to payees. The taxpayer provided banks with a dedicated connection, monitored and supported network hardware, software, and mainframe operations, employed professionals to monitor transactions to prevent fraud and ensure compliance with banking regulations, provided professional support directly to users in cases where payments were not made as instructed, and prepared reports for the banks regarding users and payments. None of the taxpayer’s services to banks fall within the activities listed in the state’s definition of taxable data processing services. The taxpayer came under a specific exclusion in the definition for providers of professional services who use a computer to facilitate the performance of their service. As a result, the services provided were nontaxable professional services. (Hegarv. CheckFree Services Corporation, Court of Appeals of Texas, Fourteenth District, Houston, No. 14-15-00027-CV, April 19, 2016)

(07/25/2016)

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