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NEWS & TIPS

The Sales Tax Institute reviews numerous sales tax publications to monitor state activity on various topics related to sales and use tax. By checking updates routinely, you may be alerted to an impending tax law change critical to your business.

Browse recent and archived news items by searching relevant categories, states or descriptions at right

The information listed here is high-level summary and background material intended to help you stay current in the dynamic area of sales and use tax. Sources include CCH State Tax Day, Sales and Use Tax Alert, Sales Tax Notes, Vertex, Inc. Reference Manuals, Westlaw, and other miscellaneous state tax newsletters and Department of Revenue notices.

Please note that these summaries omit many details and special rules, and cannot be regarded as legal or tax advice. For more information, be sure to contact your tax advisor.


HOT NEWS UPDATES:

 

Washington has enacted legislation that creates marketplace nexus and reporting requirements provisions and expands the state’s economic nexus provision. Effective January 1, 2018, remote sellers, referrers and marketplace facilitators must elect to either collect and remit Washington sales or use tax on taxable sales into Washington or comply with notice and reporting requirements. The requirements apply to remote sellers or marketplace facilitators with gross receipts from retail sales sourced to Washington in the current or preceding calendar year of at least $10,000. A referrer is subject to the requirements if during the current or immediately preceding calendar year, gross business income received from referral services apportioned to Washington, whether or not they are subject to sales and use tax, and from retail sales sourced to Washington, if any, is at least $267,000. This is in addition to its Click Through and Affiliate nexus provisions which were passed in 2015. Until January 1, 2020, the requirements do not apply with respect to the retail sale of digital products and digital codes, other than specified digital products and digital games and digital codes used to redeem specified digital products and digital games, by a marketplace seller through a marketplace facilitator or directly resulting from a referral.

 

If the election is to comply with the notice and reporting requirements, a seller, other than a referrer acting in its capacity as a referrer, subject to the notice and reporting requirements of this section must post a conspicuous notice on its marketplace, platform, web site, catalog, or any other similar medium that informs Washington purchasers that:

 

  • Sales or use tax is due on certain purchases;
  • Washington requires the purchaser to file a use tax return; and
  • The notice is provided under the requirements of the legislation. 

 

The seller must provide a notice to each consumer at the time of each retail sale that must include the following information:

 

  • A statement that neither sales nor use tax is being collected or remitted upon the sale;
  • A statement that the consumer may be required to remit sales or use tax directly to the Washington State Department of Revenue (department); and
  • Instructions for obtaining additional information from the department regarding whether and how to remit the sales or use tax to the department.

 

The notice must be prominently displayed on all invoices and order forms including, where applicable, electronic and catalog invoices and order forms, and upon each sales receipt or similar document provided to the purchaser, whether in paper or electronic form.Sellers subject to the notice and reporting requirementsmust also provide an annual report no later than February 28 of each year to each Washington purchaser stating that the seller did not collect sales or use tax on sales and that the consumer may be required to remit such tax directly to the department and including details on the purchaser’s transactions. This must be sent for first class mail if a billing or shipping address is known and if not known then via email. An annual report must also be filed with the department by February 28 of each year that includes purchasers’ information (including billing and shipping addresses and total dollar amount of the purchases) and an affidavit from a seller’s officer affirming that reasonable efforts were made to comply with notice requirements.

 

A referrer subject to the notice and reporting requirementsmust post a conspicuous notice on its platform informing Washington purchasers that:

 

  • sales or use tax is due on certain purchases;
  • the seller may or may not collect and remit retail sales tax on a purchase;
  • Washington requires the purchaser to file a use tax return if retail sales tax is not assessed at the time of a taxable sale by the seller;
  • the notice is provided under the requirements of the legislation. 

 

A referrer must send a notice by February 28 of each year to each marketplace seller to whom the referrer transferred a potential purchaser located in Washington during the previous year. The notice must state that the seller must collect and remit retail sales or use tax on all taxable retail sales sourced to Washingtonor comply with notice requirements. A referrer must also submit an annual report to the department by February 28 of each year that includes a list of sellers who received notice and an affidavit from a referrer’s officer stating that the referrer made reasonable efforts to comply with notice and reporting requirements.

 

The department MUST assess a penalty of $20,000 in addition to any other penalties against any seller, other than a referrer acting in its capacity as a referrer, or to a referrer that fails to provide notice to consumers on each order and on their marketing and sales materials.  This penalty can be assessed once per year regardless of the number of notices a seller fails to provide.  Additional penalties ranging from $5,000 to $100,000 plus $20,000 for each $50,000 in sales above $300,000 in sales for failure to issue the annual notice to consumers must be assessed.  The penalty for failure to provide the annual statement to the Department will be assessed at $25 per consumer not included in the report with a minimum penalty of $20,000.  All these penalties are cumulative and interest will accrue on the penalties.  It is apparent that Washington is “encouraging” registration and collection in lieu of the notice option by imposing such harsh penalties for non-compliance.  There are provisions for a conditional waiver of penalties if the seller enters into an agreement with the state to come into compliance with the provisions as well as some limited penalty relief due to circumstances beyond the seller’s control or due to reasonable cause and not willful neglect.  There are also provisions for personal liability related to the tax for a variety of reasons (including accepting an invalid exemption certificate) – not just related to the new remote seller provisions.

 

A positive component of the bill is a limitation on class action lawsuits against retailers related to the collection of sales tax.  Consumers still have rights to file refunds directly with the department.   

 

Beginning July 1 2017, economic nexus for Washington business and occupation (B&O) tax purposes is extended to persons engaged in retail sales as long as the person has more than $267,000 in receipts from Washington, more than $53,000 property or payroll in the state, or at least 25 percent of the person’s total property, payroll, or total receipts in Washington. A person who has a substantial nexus with Washington in the current calendar year based solely on the person's property, payroll, or receipts in Washington during the current calendar year, is subject to the B&O tax imposed for the current calendar year only on business activity occurring on and after the date that the person established a substantial nexus with Washington in the current calendar year. For our previous news item on Washington’s economic nexus provisions, see Washington Enacts Click-Through and Economic Nexus Provisions. (H.B. 2163, Laws 2017)

 

UPDATE: The Washington Department of Revenue has issued helpful information regarding the obligations for remote sellers created under this legislation. For more information, visit the Washington Department of Revenue webpage

(01/19/2018)

Effective January 1, 2018, a seller is deemed to have substantial nexus in Ohio if the seller: 

 

  • uses in-state software to sell or lease taxable tangible personal property or services to consumers, provided the seller has gross receipts in excess of $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in Ohio, or
  • provides or enters into an agreement with another person to provide a content distribution network in Ohio to accelerate or enhance the delivery of the seller's web site to consumers, provided the seller has gross receipts in excess of $500,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in Ohio

 

"In-state software" means computer software, as defined in section 5739.01, that is stored on property in Ohio or is distributed within Ohio for the purpose of facilitating a seller's sales. Computer software means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.  This could include internet cookies.

 

"Content delivery network" means a system of distributed servers that deliver web sites and other web content to a user based on the geographic location of the user, the origin of the web site or web content, and a content delivery server. Ohio previously enacted Click Through and Affiliate nexus in 2015. It will be interesting to see if a challenge is upheld as the Ohio Commercial Activity Tax (CAT) has an $500,000 economic nexus threshold which has been upheld as an adequate quantitative standard that ensures that taxpayer’s nexus with Ohio is substantial.  (H.B. 49, Laws 2017)

(07/26/2017)

Effective October 1, 2017, Maine’s legislature has enacted legislation requiring remote sellers to collect and remit sales tax on sales of tangible personal property, products transferred electronically or services that are delivered into Maine, if:

 

  • The seller’s gross revenue from such sales into Maine in the previous calendar year or current calendar year exceeds $100,000; or
  • The seller made such sales into Maine in at least 200 separate transactions in the previous calendar year or the current calendar year.

 

The state may bring a declaratory judgment action against remote sellers to establish the federal and state legal validity of the tax collection obligation. The obligation to collect and remit the sales and use tax required by the legislation may not be applied retroactively. If an injunction against the legislation is lifted, the obligation to collect sales and use tax applies from that date forward for persons covered by the injunction. The legislature overrode the Governor’s veto of the legislation. We expect litigation challenging the law to be filed as has happened in other states. (L.D. 1405 (S.P. 483), Laws 2017)

(07/12/2017)

Oklahoma has enacted legislation directing the Oklahoma Tax Commission to establish a tax amnesty program that will run from September 1, 2017 through November 30, 2017. Eligible taxes include sales and use, mixed beverage, gasoline and diesel, gross production and petroleum excise, corporate and personal income, and personal withholding tax. Eligible taxpayers would be entitled to a waiver of penalty, interest, or other collection fees due on the eligible taxes if the they voluntarily file returns and pay taxes due during the course of the amnesty program. The lookback period for which additional taxes may be assessed will be limited to three taxable years for annually filed taxes or 36 months for taxes that do not have an annual filing frequency. To be eligible to participate, taxpayers must:

 

  • Not have outstanding tax liabilities other than those reported pursuant to this initiative;
  • Not have been contacted by the Oklahoma Tax Commission, or third party acting on behalf of the Commission, with respect to the taxpayer's potential or actual obligation to file a return or make a payment to the state;
  • Not have collected taxes from others, such as sales and use taxes or payroll taxes, and not reported those taxes; and
  • Not have, within the preceding three years, entered into a voluntary disclosure agreement for the type of tax owed

 

Taxpayers who meet all of the above qualifications, except those who have collected taxes from others, such as sales and use taxes or payroll taxes, and not reported those taxes, may enter into a modified voluntary disclosure agreement. The provisions of a modified voluntary disclosure agreement would be the same as a voluntary disclosure agreement except the waiver of interest shall not apply except as may be optionally granted at the discretion of the Tax Commission, and the period for which taxes must be reported and remitted or assessed is extended beyond the three year or thirty six month lookback period to include all periods in which tax has been collected but not remitted. (H.B. 2380, Laws 2017, effective July 1, 2017)

(06/05/2017)

On April 3, 2017, the Massachusetts Department of Revenue issued a directive with economic nexus provisions for out-of-state internet sellers. It adopts an administrative bright line rule, instead of applying sales and use tax collection requirements on a case by case basis. Per the directive, an internet seller with a principal place of business located outside the state is required to register, collect and remit Massachusetts sales or use tax on sales into the state as follows:

 

  • For the period of July 1, 2017 to December 31, 2017, if during the preceding 12 months (July 1, 2016 - June 30, 2017), it had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.
  • For each calendar year beginning with 2018, if during the preceding calendar year it had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions. 

 

The directive discusses Quill Corp. v. North Dakota and states that internet sellers with significant Massachusetts sales meets the statutory and constitutional standards that apply for purposes of the imposition of the commonwealth’s sales or use tax collection duty. In its discussion of what constitutes substantial physical presence under the Commerce Clause, the Directive distinguishes Large Internet Vendors from mail order vendors.  Specifically, it considers software, apps and cookies that are typically used by internet sellers to be tangible personal property owned by the seller as substantial physical presence in the state.  In addition, they consider Content Distribution Networks (CDN) providers that may be located in the state of Massachusetts to be performing local activities “on behalf of the vendor that are significantly associated with the vendor’s ability to establish and maintain a market” for its sales. When that activity takes place in Massachusetts it establishes an instate physical presence on behalf of such vendor.

 

Large Internet vendors may also utilize other persons as instate representatives that result in the creation of an instate physical presence. For example, large Internet vendors commonly sell goods through “online marketplaces.”  These online marketplaces, which offer a range of potential services through employees or other contract personnel, benefit the client/vendor by, among other things, enhancing its name recognition and creating consumer confidence with respect to its products. These arrangements may vary in form. Many of these agreements allow the Internet vendor to post goods for sale on a website operated by the online marketplace, with orders and payment then processed through that website (with subsequent order fulfillment completed by the individual Internet vendor). Other agreements may provide for increased services by the employees or other personnel of the online marketplace, which may include order fulfillment, return processing, access to the online marketplace’s customer service team, and the preparation of sales reports or other analytics. In either instance, although the website maintained by the online marketplace on which the vendor’s products are sold is “virtual,” some of the various services provided by the online marketplace in connection with the sale of the vendor’s products will be physical in nature.  Because these latter, physical services operate to establish and maintain the Internet vendor’s market, these services, when performed in the state, will result in an Instate physical presence on the part of such vendor. 

 

Also, large Internet vendors may utilize delivery services that exceed the type of delivery services that were evaluated by Quill. Quill held that a state could not impose a sales or use tax collection duty on vendors that limit their contacts with the state to the contacts of mail and common carrier. In contrast, large Internet vendors may utilize delivery services that provide not merely product delivery, but additional services that may include logistics, order fulfillment, storage, return processing and order management. In general, these additional services operate to enhance the vendor’s sales. Therefore, these services, when performed in the state, will result in an instate physical presence on the part of such vendor. 

 

This is an expansive definition of substantial physical presence defined not through the legislative process but through a Department of Revenue Directive.  The Department is making this a prospective position.  It is very likely this will be challenged as economic nexus provisions in other states.  We will monitor and update this news items with developments. (Directive 17-1: Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax, April 3, 2017)

 

UPDATE:The trade associations NetChoice and American Catalog Mailers Association have filed a motion for a preliminary injunction to enjoin the enforcement of Directive 17-1. NetChoice and the American Catalog Mailers Association are challenging the directive as being in violation of the Commerce Clause of the U.S. Constitution as interpreted by the Supreme Court in Quill v. North Dakota. They also claim that the directive is in violation of the Administrative Procedure Act and is barred by the Internet Tax Freedom Act. We will continue to monitor for developments. (American Catalog Mailers Association and NetChoice v. Michael J. Heffernan, in his capacity as the Commissioner of the Massachusetts Department of Revenue)

 

UPDATE: On June 28, 2017, the Massachusetts Department of Revenue issued Directive 17-2, which revokes Directive 17-1: Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax, effective immediately. The Department of Revenue anticipates proposing regulations which would require large Internet vendors to collect Massachusetts sales and use tax on a prospective basis under standards similar to those in Directive 17-1.  The regulatory proposal will be based upon legal rationale similar to that in Directive 17-1. (Directive 17-2: Revocation of DD 17-1 In Anticipation of a Proposed Regulation)

(07/11/2017)

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