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Utah has enacted legislation creating a sales and use tax exemption for purchases or leases of certain machinery and equipment by an electronic financial payment service. The exemption is effective July 1, 2013. To qualify, the machinery and equipment must be used in the operation of an electronic financial payment service and have an economic life of three or more years.  Normal operating repair or replacement parts used in the operation of the service which also have an economic life of three or more years are also exempt. An "electronic financial payment service" is an establishment within North American Industry Classification System (NAICS) 522320, Financial Transactions Processing, Reserve, and Clearinghouse Activities, of the 2012 NAICS of the federal Executive Office of the President, Office of Management and Budget, and that performs electronic financial payment services. (S.B. 171, Laws 2013)

(05/23/2013)

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)

Utah has issued a private letter ruling regardingthe taxability of gift codes, affiliate nexus and sales and use tax registration requirements. Out-of-state online retailers affiliated with an out-of-state company that sells gift codes to Utah consumers are not required to collect and remit tax on their separate sales of property to Utah consumers because the online retailers engage in business from facilities located outside of Utah. The online retailers do not have to register in Utah under the affiliate nexus rules. Retailers are only required to collect and remit tax based on another entity’s presence in Utah if the other entity is a related seller under Utah law and has a certain ownership relationship with the online retailers. The company in question and its website operator are not related sellers as they do not have a place of business in Utah. The retail establishments, other online retailers, the gift card processor and the wholesalers are located in Utah, but they do not have the requisite ownership relationships with the online retailers. Sales of gift codes by the out-of-state company directly to Utah consumers online are not taxable as they are considered intangible rights that represent a form of payment and are not tangible personal property or a taxable service. Therefore the company is not required to register to collect and remit sales and use tax. The ruling notes that none of the above conclusions would change if the company were to sell the gift codes directly to retail establishments in Utah. Currently, the company sells gift codes through wholesalers. (Private Letter Ruling, Opinion No. 12-010, Utah State Tax Commission, February 8, 2013)

(03/26/2013)

The Streamlined Sales Tax (SST) Governing Board has voted unanimously to accept Utah as a full member of the SST Agreement, effective October 1, 2012. The board had recently approved an amendment to the SST Agreement allowing states that apply origin-based sourcing to intrastate sales to become full members of the Agreement. The amendment allowed Utah, previously an associate member, to become a full member of the agreement. Any taxpayers registered under the Streamlined Registration System will be required to start collecting tax on all sales into Utah effective October 1, 2012. The Utah SST Amnesty period will end on September 30, 2013. (Conference call, Streamlined Sales Tax Governing Board, June 29, 2012)

(07/24/2012)

The Utah State Tax Commission has updated guidance on business activity and nexus for sales and use tax purposes. The publication redefines “nexus” to mean that a business entity has established a direct or representational presence within a state or jurisdiction. This presence allows Utah to require the business to collect and remit certain taxes. “Retailer” is also redefined as any person regularly engaged in regular solicitation of a consumer market in Utah. A retailer includes commission merchants, auctioneers, salesmen, representatives, distributors, supervisors and employers. The publication also discusses the recently enacted Utah affiliate nexus rules. It states that a seller has nexus in Utah if the seller has a more than 10% interest in a related seller, a related seller has a more than 10% interest in the seller, or a related seller wholly owns a seller; and the seller sells the same or a very similar line of products as the related seller under the same or a very similar business name, or the place of business of the related seller or one of its in-state employees is used to advertise, promote, or assist sales by the seller to a buyer. (Publication 37, Utah State Tax Commission, May 2012)

(06/22/2012)

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