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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)

An out-of-state retailer that sold nutritional supplements in Washington was liable for sales tax and B&O tax because it had substantial nexus with Washington. The company made wholesale sales to retailers and distributors and retail sales through infomercials. Employees of the company traveled to Washington to participate in trade shows, sales staff training, and promotional planningto support its wholesale sales. The company engaged marketing firms to assist in marketing its products in Washington. The marketing firms solicited sales from the taxpayer’s wholesale customers, received orders, and acted as intermediaries with retailers on promotional programs. The taxpayer asserted that the Commerce Clause prohibited Washington from subjecting the retail sales to sales tax. However, due to the company’s substantial physical presence in Washington, the Commerce Clause did not preclude taxation. Regarding liability for B&O tax, the company had substantial nexus because its in-state activities supported its abilities to establish and maintain a market for its goods in Washington. There is no requirement that the activities that create the nexus with the state be connected to specific sales. The company’s wholesale sales and marketing apparatus allowed it to obtain information on Washington’s nutritional products market. Additionally, its wholesale activities created a market for its retail sales, since its sales at grocery and drug stores resulted in phone inquiries from individuals. (Irwin Naturals v. Department of Revenue, The Court of Appeals of Washington, Division One, No. 73966-2-I, July 25, 2016)

(08/23/2016)

Effective from July 1, 2016 until January 1, 2027, Washington has enacted a sales and use tax exemption for charges for labor and services rendered for construction of new buildings made to an eligible maintenance repair operator engaged in maintenance of airplanes or a port district, political subdivision, or municipal corporation if the new building is to be leased to an eligible maintenance repair operator. Sales of tangible personal property to be incorporated as a component of such buildings and charges made for labor and services performed in respect to the installation of fixtures not otherwise exempt are also covered under the exemption. The exemption can be claimed as a remittance,meaning that the tax is paid and then a refund of the tax is claimed. Taxpayers can submit an application on a quarterly basis by identifying the amount of exempted tax claimed and the qualifying purchases. A taxpayer requesting a remittance may do so after the aircraft maintenance and repair station is operationally complete for four years, but not sooner than December 1, 2021. The state portion of the sales and use taxes may not be remitted(refunded) if the person didn’t report at least 100 average employment positions for September 1, 2020 through September 1, 2021 with an average annualized wage of $80,000. A taxpayer may request remittance(refund) of local sales and use taxes on and after July 1, 2016. In order to qualify for the exemption before starting construction, a port district, political subdivision or municipal corporation must have entered into an agreement with an eligible maintenance repair operator to build the facility. An annual report is required for the exemption. (H.B. 2839, Laws 2016, effective July 1, 2016)

(07/25/2016)

A company providing architectural design and construction services was denied a refund of Washington sales tax on the design services because they were provided and rendered in respect to the construction servicesthat was also performed by the company. A taxpayer generally must collect Washington retail sales tax and retailing B&O tax on charges to construct, repair, or improve new and existing buildings. Taxpayers providing design services are usually not required to collect Washington retail sales tax but must pay service and other activities B&O tax on those services. When design services are rendered "in respect to" construction, the design service is considered a retail service and the service provider is required to collect Washington retail sales tax andpay retailing B&O tax on those services. In this case, the contract language indicated that the parties contemplated that the service provider would handle both the construction and design services. Additionally, the manner in which the company marketed its ability to render both design services and construction services indicated that the parties contemplated that the company would perform both components of the work.(Determination No. 15-0135, Washington Department of Revenue, March 31, 2016)

(05/05/2016)

A business that provides cloud-based fax, messaging, and email services was liable for Washington retailing Business and Occupation (B&O) tax and sales tax because the cloud-based services did not qualify as nontaxable data processing services. The fax and message delivery were performed partly through faxes through communications channels provided by third party communications providers. In Washington, faxing services constitute telecommunicationswhich is subject to the retail sales tax and retailing B&O. The fax and messaging services were not data processing, since the customers’ primary goal was to generate and send personalized transmissions to their own customers, not the extraction or processing of data. The email services were not data processing, since the taxpayer was not hired for the primary purpose of extracting or reformatting customer data. The email services qualified as taxable digital automated services because they used one or more of the taxpayer’s software applications.The taxpayer did not qualify for exemption under the Internet Tax Freedom Act because the taxpayer did not supply email. Rather, the taxpayer offered an email service that uses email provided by third parties. The taxpayer did not qualify for exemption based on storage capacity since it did not provide personal storage used by individual consumers.(Determination No. 14-0307, Washington Department of Revenue, February 29, 2016)

(03/24/2016)

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