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As Lisa Blaeser of CCH recently reported, Illinois has enacted legislation
that creates a rebuttable presumption that retailers will
have nexus with Illinois if their in-state sales contacts provide potential customers
with a promotional code that allows the retailer to track the referred
customers’ purchases. 


P.L. 98-1089 (S.B. 352), Laws 2014, which is scheduled to take
effect on January 1, 2015, has amended the existing Illinois click-through
nexus law to provide that a retailer is presumed to be maintaining a place of
business in the state if the retailer has a contract with a person located in
Illinois under which the person, for a commission or other consideration that
is based on the sale of tangible personal property by the retailer, directly or
indirectly refers potential customers to the retailer by providing them with a promotional code
or other mechanism that allows the retailer to track purchases referred by such
persons. Under the law, examples of a mechanism that allows the tracking of
purchases include the use of a link on the person’s website, promotional codes distributed
through hand delivery or by mail, and promotional codes distributed through
radio or other broadcast media.


The presumption will apply only if the cumulative gross receipts from sales of
tangible personal property by the retailer to customers who are referred to the
retailer by all persons in Illinois under such contracts exceed $10,000 during the
preceding four quarterly periods ending on the last day of March, June,
September, and December. The presumption can be rebutted by submitting proof
that the in-state contacts’ referrals or other activities in Illinois did not meet
the nexus standards of the U.S. Constitution during the four quarterly periods.


The legislation purportedly fixes a defect Illinois’ click-through nexus law, which,
as Blaeser reported, was previously held void and unenforceable by the Illinois
Supreme Court in
Performance Marketing Association, Inc. v. Hamer. In that case, the court held that the
Illinois click-through nexus law was preempted by the Internet Tax Freedom Act
because it imposed discriminatory taxes on electronic commerce. The law was
found to be discriminatory because it imposed a use tax collection obligation
on out-of-state retailers who maintained links on websites, but it did not
impose such an obligation on similar types of advertising such as promotional codes made
available by out-of-state retailers in newspapers or other printed publications
or through over-the-air broadcasting. The court did not address the issue of
whether the click-through nexus law violated the Commerce Clause of the U.S.

As CCH’s Bob Wilson has reported, the Texas Comptroller has announced that it is implementing a franchise tax processing improvement effective for the 2014 extended due date in order to deal with combined reports with missing affiliates.


The Comptroller notes that sometimes a reporting entity for a combined group requests an extension of time to file and includes an entity on its affiliate extension list that, for various reasons, is not included when the report is ultimately filed. The Comptroller explains that when it evaluates the reported data and finds the two sets of affiliate data do not match, current processing rules create a delinquency for the reporting entity and for all members of the combined group until the discrepancy is resolved.


Beginning in mid-October 2014 the process will change. The Comptroller’s office will notify the reporting entity of the failure to report the affiliate. If the issue is not resolved, the Comptroller’s office will sever the affiliation between the entity that was not reported and the rest of the combined group. The severed entity must file a franchise tax report on its own, while the combined group members’ right to transact business will remain intact.

David Caplan of CCH notes that, according to unofficial results of the August 19 primary election in Alaska, a ballot measure to repeal the oil and gas production tax changes made by S.B. 21, Laws 2013, has failed by a narrow margin. The legislation, also known as the More Alaska Production Act, modified the rate structure and revamped credit provisions of the oil and gas production tax. Gov. Sean Parnell signed S.B. 21 into law on May 21, 2013, and key provisions took effect on January 1, 2014. If approved, Ballot Measure No. 1 would have reinstated the previous tax structure, known as Alaska’s Clear and Equitable Share (ACES), passed during the administration of Gov. Sarah Palin.


S.B. 21 increased the base tax rate from 25% to 35% while eliminating the progressivity component of the tax, which applied in months when a producer’s average monthly production tax value exceeded $30. The legislation also provided that qualified oil and gas produced from leases or properties on the North Slope would be eligible for a 20% reduction, called a gross revenue exclusion, in the gross value at the point of production. The gross revenue exclusion is applicable only to certain “new” production. The law provided for an additional 10% gross revenue exclusion for oil and gas produced from certain North Slope units.


Tax credit modifications included the addition of two new per-barrel credits for North Slope producers and elimination of the tax credit for qualified capital expenditures on the North Slope after January 1, 2014. S.B. 21 also provided a corporate income tax credit for qualified oil and gas service-industry expenditures and established an Oil and Gas Competitiveness Review Board in the Department of Revenue. Other provisions of the law lowered the interest rate that applies to overdue taxes from 5% above the applicable federal rate, or 11%, whichever is greater, to 3% above the applicable federal rate.



Ballot Measure No. 1 (Referendum 13SB21), Alaska primary election on August 19, 2014

Several marijuana activists and business owners have filed a lawsuit (No Over Taxation v. Hickenlooper) in the Denver District Court, seeking a permanent injunction against the collection of Colorado’s marijuana taxes and a refund of those taxes. In addition to the 2.9% state sales tax, Colorado imposes a 10% sales tax on marijuana retail transactions and a 15% excise tax on the wholesale sale of marijuana from a cultivation facility to a retail store or infused manufacturer. As the manufacture and distribution of marijuana remains in violation of the Federal Controlled Substances Act, the complaint claims that the marijuana taxes require persons subject to those taxes to incriminate themselves as “committing multiple violations of federal law, including but not limited to, participating in, aiding and abetting in, or conspiring to commit a ‘continuing criminal enterprise’ and ‘money laundering.’” As such, the plaintiffs assert that the marijuana taxes violate the Self-Incrimination and Double Jeopardy protections contained in the Fifth Amendment of the U.S. Constitution and Article II §18 of the Colorado Constitution, respectively.

The complaint further contends that the state’s marijuana regulatory scheme violates federal law and is therefore preempted under the U.S. Constitution’s Supremacy Clause. Defendants Governor Hickenlooper and Denver Mayor Hancock are themselves alleged to be “federal criminal actors” who have laundered illegal drug proceeds and conspired with J.P. Morgan Chase Bank in depositing such funds and violating federal law. The lawsuit also asserts that the marijuana taxes are excessive, as Amendment 64 to the Colorado Constitution forbid any regulation that would make the operation of a marijuana enterprise “unreasonably impracticable.”

Colorado voters approved Amendment 64, legalizing recreational marijuana, in November 2012, and legal sales began January 1, 2014.

The first half of 2014 brought with it numerous developments on the sales and use tax front. A CCH Tax Tips video discusses some notable sales and use tax developments occurring in the first half of 2014, such as emerging trends in the sales tax treatment of virtual currency and legalized marijuana.

CLICK HERE to view the video.