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In response to changes in technology and deregulation, to make its laws more current with telecommunication offerings, and due to a 2011 court decision regarding the interpretation of residential telephone service,  Washington’s sales tax exemptions for residential telephone service and coin-operated telephone service are repealed.  In addition, the state and local enhanced 911 excise tax is imposed on the sale of a prepaid wireless telecommunication service.  This is defined as a telecommunications service that provides the right to use mobile wireless service as well as other non-telecommunications services including the download of digital products delivered electronically, content, and ancillary services, which must be paid for in full in advance and sold in predetermined units or dollars of which the number declines with use in a known amount. If the seller does not collect the tax, the consumer has the obligation to pay the tax.  The tax must be separately stated on the invoice to the consumer.  The state enhanced 911 excise tax is imposed on the use of all radio access lines :(i) By subscribers whose place of primary use is located within the state in an amount of twenty-five cents per month for each radio access line. The tax must be uniform for each radio access line under this subsection (6)(a)(i); and (ii) By consumers whose retail transaction occurs within the state in an amount of twenty-five cents per retail transaction. The tax must be uniform for each retail transaction under this subsection (6)(a)(ii).  Until July 1, 2018, a seller of prepaid wireless telecommunications service may charge an additional five cents per retail transaction as compensation for the cost of collecting and remitting the tax. For purposes of the state and county enhanced 911 excise taxes imposed by subsections (2) and (6) of this section, the retail transaction is deemed to occur at the location where the transaction is sourced to under RCW 82.32.520(3)(c). (Effective August 1, 2013, Ch. 8 (H.B. 1971), Laws 2013)

(08/26/2013)

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)

Washington has reminded taxpayers that British Columbia residents do not qualify for the state’s nonresident sales tax exemption. The exemption is only available to residents of a state or province with a sales tax rate of less than 3%. The exemption does not apply to jurisdictions that impose the Harmonized Sales Tax (HST) currently in effect in British Columbia or the 7% provincial sales tax that replaces it on April 1, 2013. Residents of states such as Alaska, Montana, Oregon, and certain provinces, such as Alberta, do qualify for the exemption because they do not impose a sales tax. (News Release, Washington Department of Revenue, January 24, 2013)

(02/25/2013)

An out-of-state company has nexus with Washington and is subject to state business and occupation tax because independent contractor speakers who made presentations at live seminars in Washington for the company were representative third parties. Under Washington tax law, a "representative third party" includes an agent, independent contractor, or other representative of the taxpayer who provides services on behalf of the taxpayer directly to customers.  The volunteer speakers who made presentations at the live seminars in-state were providing services on the company’s behalf directly to the company’s customers.  As a result, the speakers created nexus in Washington for the company for business and occupation tax purposes. (Tax Determination No. 11-0292, Washington Department of Revenue, September 27, 2012)

(10/23/2012)

The Washington Department of Revenue issued a notice clarifying the sales and use tax exemption for manufacturing machinery and equipment. Recently enacted legislation made several clarifications for the purposes of the exemption: state agencies are not manufacturers; public service businesses are not manufacturers; activities taxed under the state public utility tax are not manufacturing, but; printing of newspapers or other materials is manufacturing. A taxpayer must report income under a “manufacturing” or “processing for hire” business and occupation tax classification in order to qualify for the exemption. The exemption also applies to businesses that would otherwise be taxed under these classifications if such activities were conducted in Washington or if not for an exemption or deduction. The legislation took effect on April 1, 2011, but the amendments to the manufacturing exemption apply retroactively to any tax period open for assessment or refund of taxes. The legislation provides that the production of Class A or exceptional quality biosolids by a wastewater treatment facility is considered to be a manufacturing activity. As a result, a wastewater treatment facility may qualify for the manufacturing exemption for machinery and equipment used in the production of Class A or exceptional quality biosolids for sale if the requirements of the exemption statute are met. (Special Notice, Washington Department of Revenue, June 7, 2011)

(04/20/2012)

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