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On June 15, 2015, Representative Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act (RTPA) of 2015 in the U.S. House of Representatives. The bill – similar to the Marketplace Fairness Act (MFA) of 2015 – pertains to sales and use taxcollection obligations for remote sellers, but the RTPA contains some differences and several additional provisions. Unlike the MFA’s $1 million small seller exception, the RTPA’s small seller exception is as follows: first year: $10 million; second year: $5 million; third year: $1 million. The exception goes away in the fourth year. Furthermore, under the RTPA sellers utilizing an electronic marketplace are not considered small sellers and are not entitled to the exception, no matter the year. Under the RTPA, sellers would not be audited by states where they don’t have a physical presence. There would be a three year statute of limitations for assessments on remote sellers. The bill would enable remote sellers to refund over-collected tax to customers. The RTPA also specifies that a state would not be authorized to impose a sales and use tax collection requirement on remote sellers until it has certified multiple software providers that are certified in all states seeking to impose authorization requirements. The RTPA would also allow customers to pursue refunds of over-collected tax from remote sellers. However, RTPA does not preempt states from imposing sales and use taxes on remote sellers that do not have physical presence under this definition. It merely authorizes states to impose sales and use tax on remote sellers without a physical presence. Under the RTPA, if a seller has nexus under existing law, including Quill v. North Dakota, then the state may still impose a sales and use tax collection requirement.  The bill is assigned to the Judiciary Committee just like the MFA.  On July 1, 2015 it was referred to the Subcommittee on Regulatory Reform, Commercial And Antitrust Law. (H.R. 2775, the Remote Transactions Parity Act of 2015)

 

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.

(09/08/2015)

The sale of licensed software and digital content to Texas users by a Utah company primarily through Internet downloads established substantial nexus with Texas for sales and use tax purposes. Nexus was created because the seller retained title to tangible personal property - the software - that was physically present and generating license revenue in Texas. The license agreements granted the customer a license to use the seller’s products, restricted the use of the products by third parties, and explicitly provided that the seller retained all rights in, title to, and ownership of the licensed products. The seller did not challenge the characterization of its software products as tangible personal property. As a result, the seller retained property rights in tangible personal property that was present and generating recurring revenue in Texas. This reservation of property rights overrode the seller’s claim that it lacked the requisite physical presence to create sales tax nexus in Texas. Visits by several of the seller’s employees at two conferences held in Texas during the audit period did not establish nexus because the employees did not solicit orders or engage in any sales activities and were present at the conferences only for learning purposes. (Decision, Hearing No. 108,626, Texas Comptroller of Public Accounts, September 19, 2014, released November 2014)

(05/14/2015)

A build-to-suit lease between an exempt nonprofit entity and a nonexempt landlord that agreed to acquire, construct, and lease a new facility to the nonprofit entity qualified as an exempt contract for Texas sales tax purposes to improve real property for the primary use and benefit of an exempt entity. As a result, the landlord’s purchases of tangible personal property for incorporation into realty and taxable services for use in the performance of the contract were exempt. In Texas, for situations involving an exempt lessee and a nonexempt lessor, a two-prong test is used to determine whether improvements to realty are for the primary use and benefit of the exempt entity. First, the lessee must qualify for exempt status under Texas law. Second, the term of the lease must be sufficiently long in relationship to the life of the improvements themselves. Both prongs of the test were satisfied. The lessee was a qualified tax-exempt entity and the term of the lease (25 years) was sufficiently long in relationship to the life of the improvements to ensure that the exempt entity would have the primary use and benefit of the improvements. (Letter No. 201411980L (PLR #142750488), Texas Comptroller of Public Accounts, November 6, 2014)

(05/13/2015)

The owner of a software product was liable for Texas sales tax on payments received from companies for a variety of items that the taxpayer claimed were nontaxable advertising services.  The taxpayer charged customers for creating or modifying plug-in advertisements contained in the software product. The taxpayer’s software program had a dialogue box that monitored the available storage space on a subscriber’s network. The taxpayer named this function after an advertising sponsor that provided storage serverswhich allowed the advertiser to promote its servers. This was determined to be nontaxable advertising. However, when the sponsor subsequently paid the taxpayer to add a print feature that allowed subscribers to print out the company’s report of available storage, the service then constituted taxable data processingas the advertising intent was complete without the print function.  The print function allowed the taxpayer to retrieve and print the information for its subscribers which is data processing. A web-hosting company’s purchase of a plug-in advertisement on the software that allowed subscribers to view their e-mail accounts (on the web-hosting company’s network) while logged into the taxpayer’s software program was held not to be taxable data processing because there was no indication that the taxpayer created or maintained a website or webpage for the web-hosting company or stored data for the web-hosting company on either the taxpayer’s or the company’s website. The taxpayer was simply linking subscribers to data stored on the web-hosting company’s network. However, later charges for monthly fees to maintain the integration to the Cloud Services were deemed taxable data processing services.  The taxpayer’s creation of banner ads sponsored by a company did not constitute taxable data processing. The same company’s sponsorship of the taxpayer’s monthly e-mail newsletter would also be nontaxable advertising if the charge was only for the naming rights. However, the taxpayer was sending the newsletter via e-mail, which constituted a taxable e-mail transmissionat the 80% base for taxable data processing. Because the charges for the banner ads and newsletter sponsorship were not separately stated, the entire lump sum was taxable. The taxpayer was determined to be engaged in taxable data processing when it modified its software program to create a security plug-in sponsorship for a company. Monthly fees charged by the taxpayer for notifying a company when a review of one of the company’s products was posted on a public chat room were determined to be charges for taxable information services. The information did not qualify as exempt information of a proprietary nature because the information was not collected from a private source and the taxpayer did not establish that the company had an ownership right to control the use of the information. (Decision, Hearing No. 109,109, Texas Comptroller of Public Accounts, February 6, 2015, released April 2015)

(04/27/2015)

On March 10, 2015, a bipartisan group of senators introduced the Marketplace Fairness Act of 2015. Similar legislation – the Marketplace Fairness Act of 2013 – was previously introduced in February 2013 and passed by the Senate on May 6, 2013. That legislation failed to be enacted. If passed, the Marketplace Fairness Act of 2015 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. For more information on the previous legislation, visit Federal Government Introduces New Remote Seller Bill. (Marketplace Fairness Act of 2015, March 10, 2015)

 

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.

(03/16/2015)

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