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President Barack Obama has signed federal legislation extending the Internet Tax Freedom Act (ITFA) through December 11, 2014 as part of the joint resolution which made continuing appropriations for fiscal year 2015. The ITFA was previously set to expire on November 1, 2014. The ITFA bars state and local governments from imposing multiple or discriminatory taxes on electronic commerce and taxes on Internet access.


For an update to this news item, see Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.


(P.L. 113-164 (H.J. Res. 124), 113th Congress, 2nd Session, Laws 2014)


An out-of-state company that designs and manufactures custom heating systems had nexus with Washington for business and occupation (B&O) tax purposes due to the presence of a third-party sales representative and company engineers who assisted in the installation of the systemswithin Washington. In order for the B&O tax to apply on sales of goods which originate outside of Washington, the goods must be received by the purchaser in Washington and the seller must have nexus with Washington.  The B&O tax will not apply if either of these two conditions are missing. 


The taxpayer contended that it did not have nexus and argued that its in-state activities were not related to generating sales. The court noted that the standard for establishing nexus is not whether the in-state activity directly solicits a sale, but whether the activity is significantly associated with establishing or maintaining a market within Washington. The court concluded that both the activities of the third-party sales representative and the employee engineers were significantly associated with maintaining a market for the taxpayer’s products in Washington. The presence of the employee engineers for field service engagements directly and specifically supported the sales of equipment. The fact that the field service engagement was available and that customers sometimes partook of this option was an important part of the sales process and sufficient to establish taxing nexus. (Tax Determination No. 13-0213, Washington Department of Revenue, April 30, 2014)


The Streamlined Sales and Use Tax (SST) Governing Board has  issued a best practices matrix which provides answers to whether the state follows the best practices set forth in the SST Agreement regarding deal-of-the-day vouchers. All SST Member states are to complete and publish their position on the best practices.  The matrix outlines if the “best practiceas approved by the Streamlined Sales Tax Governing Board (SSTGB) for each of the products, procedures, services, or transactions identified in the chartis followed by the specific state. The following best practice descriptions are listed in the matrix along with whether the state follows the best practice:


1.       The member state administers the difference between the value of a voucher allowed by the seller and the amount the purchaser paid for the voucher as a discount that is not included in the sales price (i.e., same treatment as a seller’s in-store coupon), provided the seller is not reimbursed by a third party, in money or otherwise, for some or all of that difference.

2.       The member state provides that when the discount on a voucher will be fully reimbursed by a third party the seller is to use the face value of the voucher (i.e., same as the treatment of a manufacturer's coupon) and not the price paid by the purchaser as the measure (sales price) that is subject to tax.

3.       The member state provides that costs and expenses of the seller are not deductible from the sales price and are included in the measure (sales price) that is subject to tax. Further, reductions in the amount of consideration received by the seller from the third party that issued, marketed, or distributed the vouchers, such as advertising or marketing expenses, are costs or expenses of the seller.


Unless otherwise listed below, the SST member states have published the Best Practices Matrix and follow the three best practices listed above.


The following SST member states have issued the matrix but don’t follow some or all of the best practices listed above as of April 2014: Georgia, Kansas, Nebraska, New Jersey, and Ohio.


The following SST member states have not yet issued the matrix as of April 2014: Tennessee, Utah, Vermont, and Wyoming.  Copies of the matrix can be found on each specific state information page on the SST Web page at


Washington has passed legislation that provides an exemption from public utility tax (PUT) for sales by gas distributors of compressed natural gas or liquefied natural gas that is to be sold or used as a transportation fuel. Additionally, business and occupation (B&O) tax provisions defining the term "to manufacture" are amended to include the production of compressed natural gas or liquefied natural gas for use as a transportation fuel."Transportation fuel" is fuel for the generation of power to propel a motor vehicle, a vessel, or a locomotive or railroad car.

If a consumer uses natural gas, compressed natural gas, or liquefied natural gas as transportation fuel, the gas is not subject to the state and local brokered natural gas tax. Rather, natural gas used as transportation fuel is subject to local sales and use tax. In addition, the sales and use tax exemption for machinery and equipment used by a gas distribution business in the production of compressed natural gas and liquefied natural gas has been turned into a refund. A gas distribution business claiming the manufacturing machinery and equipment exemption must pay the state and local sales tax and later file a claim for refund. Claims may be filed beginning July 1, 2017. Businesses may not file a claim more than once per quarter, and records must be maintained to assist the Department of Revenue in determining whether the business is entitled to the exemption. The records should include invoices, proof of tax paid, and documents describing the machinery and equipment. The refund is available until July 1, 2028.

For the sale of liquefied natural gas to a business operating as a private or common carrier by water in interstate or foreign commerce, the purchaser is entitled to a partial sales tax exemption from state and local sales taxes. The exemption is for the state and local retail sales taxes on 90% of the amount of the liquefied natural gas transported and consumed outside Washington by the buyer. Sellers don’t need to collect the tax from registered taxpayers if they receive an exemption certificate or capture the relevant data elements permitted by the Streamlined Sales and Use Tax Agreement. Buyers can either pay the full amount of the tax to the seller and claim a refund or pay tax on liquefied natural gas consumed in Washington and on 10% of the gas consumed outside the state. The partial exemption does not apply to the sale of liquefied natural gas on or after July 1, 2028, for use as fuel in any marine vessel. (S.B. 6440, Laws 2014, effective July 1, 2015)


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)



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