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Representative Lamar Smith (Republican, Texas) has introduced a bill to bar multiple taxes on digital goods and services.  Smith had proposed an earlier bill which failed to pass.  This bill is a revised version of the earlier bill. The proposed bill – called the Digital Goods and Services Tax Fairness Act of 2013 – would only allow a state to tax sales of digital goods and services to customers with a tax address within that state. Additionally, states would be barred from imposing multiple taxes on digital goods. The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not included as a digital good in the bill. (H.R. 3724)

(01/28/2014)

A resale exemption certificate that used a customer’s 9-digit federal employer identification number (FEIN) in the Virginia retail sales and use tax certificate of registration number space rather than the 15-digit registration number issued by the Department of Taxation was determined to be acceptable because it was correct in all other respects. The use of a FEIN on a Virginia resale certificate of exemption does not invalidate the good faith acceptance of the certificate so long as no other deficiencies are found on the certificate.  The 15-digit Virginia registration number includes the FEIN and so this was deemed to be acceptable.  (Ruling of Commissioner, P.D. 13-132, Virginia Department of Taxation, July 8, 2013)

(10/30/2013)

Virginia has issued a bulletin regarding previously enacted affiliate nexus legislation that becomes effective September 1, 2013.  To view our previous news item on the legislation, click here. Under the legislation, a dealer is presumed to have nexus in Virginia if any commonly controlled person maintains a distribution center, warehouse, fulfillment center, office, or similar location in Virginia that facilitates the delivery of tangible personal property sold by the dealer to its customers. Dealers may rebut the presumption if they can demonstrate that the commonly controlled person’s activities in Virginia are not significantly associated with the dealer’s ability to establish or maintain a market in Virginia. The legislation provided that it is effective on the earlier of September 1, 2013 or upon passage of federal legislation granting states the authority to require remote sellers to collect taxes on goods shipped to in-state purchasers.  As federal legislation has not been enacted, the effective date for the legislation is September 1, 2013.  All affected out-of-state dealers must begin collecting sales and use taxes on sales made into Virginia on September 1, 2013. (Tax Bulletin 13-11, Virginia Department of Taxation, August 22, 2013)

(09/16/2013)

An individual Virginia taxpayer was not liable for the unpaid Virginia retail sales and use taxes of a corporation that sells and services auto tires because he did not satisfy all of the criteria required to be considered a corporate officer as defined by Virginia tax code. During the period in question, the taxpayer owned a 20% share in the corporation. The taxpayer’s election as president of the corporation was in title only since he continued to perform duties as the corporation’s shop foreman, overseeing and performing tire sales, installation, repair, and servicing. Although he was an officer of the corporation, he did not have the specific duty of timely reporting and paying the tax on behalf of the corporation. The taxpayer also lacked actual knowledge of the corporation’s failure to file and pay its taxes until after the resignation of the secretary-treasurer. The taxpayer claimed that the secretary-treasurer oversaw all of the financial, payroll, accounting, tax, monetary and business office functions and duties. There was no evidence that the taxpayer willfully failed to pay the state taxes owed by the corporation. The taxpayer may have had apparent authority to prevent the corporation’s failure to pay the taxes, but he had no actual authority or ultimate control over the business affairs.  The vice president, as majority shareholder, had such ultimate authority. Thus, the taxpayer did not satisfy all of the criteria to be considered a corporate officer, and the converted assessments issued to the taxpayer were abated.(Ruling of Commissioner, P.D. 12-100, Virginia Department of Taxation, June 15, 2012)

(06/20/2013)

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)

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