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The SALT Minds Blog

21 Posts authored by: Daniel Schibley

Congressional action on pending online sales tax collection legislation will have to occur by June if the legislation is to have any chance of passing before the election, the Streamlined Sales Tax Governing Board Executive Committee was told on Feb. 17. After June, the Congress is unlikely to move any legislation forward until after the November election. The likeliest scenario is that the legislation will not be taken up until a lame duck session of Congress following the election, according to the committee’s representative on Capitol Hill.

The House Judiciary Committee is unlikely to move forward with the Marketplace Equity Act (H.R. 3179), which was introduced with bipartisan support on Oct. 13, 2011. There is insufficient Republican support on the full committee to bring the bill to the floor. Therefore, supporters of a collection mandate are pinning their hopes on the Senate.


 

Sen. Richard Durbin, D-Ill., the chief sponsor of the Marketplace Fairness Act (S. 1832) , needs additional Republican sponsors before he pushes for a vote. The bill was introduced on Nov. 9, 2011, with five Republican sponsors and five Democratic sponsors. Durbin is seeking five more Republican sponsors. Sen. Kay Bailey Hutchison, R-Texas, has indicated she may support the legislation, leaving the proponents to attract four more Republican senators.</p>

 

There’s been an explosion in so-called Amazon legislation introduced in state legislatures since the beginning of 2012. So far, bills have been introduced this session in Florida, Hawaii, Indiana, Minnesota, Missouri, New Jersey, New Mexico, Oklahoma, Vermont and Virginia. These join similar bills introduced in 2011 that are still pending in the legislatures of Massachusetts, Michigan and Tennessee. More bills are likely to be introduced in other states.

The legislation takes various forms, but all of it seeks to expand sales tax nexus in order to force online retailers to collect tax on sales to in-state purchasers. Some bills focus on the retailers’ relationships with in-state website operators (so-called click-through nexus provisions). Others focus on the existence of in-state corporate affiliates, fulfillment centers or other entities that may assist in creating and maintaining a market for the retailers’ products. Many bills take multiple approaches.


Similar legislation was enacted in recent years in Arkansas, California, Colorado, Connecticut, Illinois, New York, North Carolina, Oklahoma, Rhode Island, South Dakota, Texas and Vermont. The California and Vermont laws are not yet in effect; however, the new Vermont bill introduced this year would firm up the effective date of the state’s collection mandate, as well as expand nexus in new ways. Recently, Pennsylvania also adopted a click-through nexus mandate, but it did so through administrative action rather than new legislation. It gave retailers until September 1st to comply.


 

Meanwhile, Amazon, the prime target of most of this legislation, agreed to begin collecting tax  for sales in California, Indiana and Tennessee by certain future dates.</p>

 

On Jan. 9, Indiana Gov. Mitch Daniels announced that online retailer Amazon has agreed to collect sales tax for the state beginning Jan. 1, 2014, or

90 days from the enactment of federal legislation  regarding online sales, whichever is earlier. Amazon has entered into similar agreements with [California | http://community.cchgroup.com/blog/The_SALT_Minds/Amazon_Bills_Introduced_in_Mich_Delayed_in_Calif/dmtyp00v00b1/132?nav=entry] and Tennessee.


Indiana will not assess the company for sales tax for other periods. Meanwhile, Gov. Daniels said he will continue to push for a comprehensive federal solution. An Indianapolis-based shopping mall owner that had filed a lawsuit against the state over its failure to collect tax from Amazon has reportedly said it will now drop the suit.


 

A copy of the announcement can be found on the governor’s website .</span></p>

 

On Nov. 14, the U.S. Supreme Court agreed to review an interesting case out of Indiana about the extent to which a city’s fiscal needs and administrative convenience will justify its refusal to pay refunds to property owners who paid an assessment that was later eliminated. The case name is Armour v. Indianapolis, Dkt. 11-161

 


The specific question raised is whether the Equal Protection Clause of the U.S. Constitution precludes Indianapolis from refusing to refund payments made by those who paid a sewer assessment in full, while forgiving the obligations of identically situated taxpayers who were paying over a multi-year period under an installment plan.


 


The background is that, after Indianapolis adopted a new assessment scheme that reduced each taxpayer's burden, the city discharged all outstanding assessments owing as of a particular date. However, it did not give refunds to those property owners who had previously paid their assessments. Owners who had paid their assessments in full filed a lawsuit seeking a refund equal to the assessments forgiven for the installment taxpayers.


 


The Indiana Supreme Court held, however, that the city did not violate the property owners' federal constitutional rights because forgiving only the outstanding assessment balances was rationally related to legitimate governmental interests. These interests included reducing the city's administrative costs, providing relief for property owners experiencing financial hardship, establishing a clear transition to the new assessment scheme, and preserving the city's limited resources.

 

On November 9, 2011, a bipartisan group of 10 U.S. senators announced the introduction of legislation that would give states implementing simplification requirements the authority to require remote sellers to collect sales and use tax, unless a seller qualifies for a small seller exception. Similar to the Marketplace Equity Act (H.R. 3179), introduced on October 13, but unlike most other legislation on this topic introduced during this and former Congresses, the Marketplace Fairness Act (S. 1832) would not limit the authorization to member states of the Streamlined Sales and Use Tax (SST) Agreement.


A full member state of the SST Agreement would receive collection authority for remote sales sourced to that state under the Agreement. This authority would begin no earlier than the first day of the calendar quarter that is at least 90 days after the date of enactment of this legislation.


Alternative collection authority would be granted to any non-SST member state that implements a series of minimum simplification requirements specified in the legislation. This alternative authority would begin no earlier than the first day of the calendar quarter that is at least six months after the date that the state enacts legislation to implement each of the requirements. The minimum simplification requirements that a non-SST member state would have to implement in return for collection authority are much less extensive than the current requirements for SST member states.


Under either method for gaining collection authority, a small seller exception would relieve a remote seller of the collection mandate if the seller, and related entities, had $500,000 or less in gross annual receipts in total remote sales in the United States in the preceding calendar year.

 

On Nov. 1, the U.S. House of Representatives passed the Wirelss Tax Fairness Act of 2011 (H.R. 1002). The legislation would bar states and localities, for five years, from imposing a new discriminatory tax on mobile services, mobile service providers, or mobile service property. A “new discriminatory tax” would be a tax imposed on mobile services, mobile service providers, or mobile service property that is not generally imposed, or is generally imposed at a lower rate, on services or transactions, businesses, or commercial or industrial property that do not involve a mobile service. A grandfather clause would exempt from the prohibition a tax that was imposed and actually enforced on mobile services, mobile service providers, or mobile service property prior to the enactment of this legislation.


The legislation will now go to the U.S. Senate for its consideration. Similar legislation (S. 543) was introduced there on March 10, 2011, by Sen. Ron Wyden, D-Ore., and several cosponsors, but no action has been taken yet on the Senate bill.

 

Michigan is the latest state where legislation has been introduced that would require collection of sales and use taxes on Internet sales . H.B. 5004 and H.B. 5005 were both introduced on September 22. The bills include both click-through nexus and affiliate nexus provisions.

Meanwhile, California Gov. Jerry Brown has signed [legislation | http://community.cchgroup.com/blog/The_SALT_Minds/California_Legislature_Votes_to_Delay_Amazon_Law/dmtyp00v00b1/117?nav=entry] delaying the operative date of the state’s new “Amazon law”


 

The federal effort may have gotten a little more complicated in light of an opinion handed down by the U.S. Court of Appeals for the Second Circuit on September 20 (Red Earth LLC v. United States). The federal appeals court suggested that Congress may lack the authority to require an out-of-state seller to collect a state’s tax unless the seller has a minimum number of sales into that state. What that threshold would be is unclear.</span></p>

 

Legislation that would delay implementation of California’s two-month old “Amazon” law  has passed the Legislature and is on its way to Gov. Jerry Brown. According to published reports, Amazon will drop its effort to gather signatures for a voter repeal in return for the one-year delay in implementation.

Under the new legislation, California law would temporarily return to the standards in place before the Amazon law was enacted in late June. The click-through and affiliate nexus provisions would then only take effect next year. The exact timing would depend on whether the states receive federal authority to make remote sellers collect the states’ sales taxes.


Legislation to give member states of the Streamlined Sales and Use Tax (SST) Agreement remote collection authority [was introduced | http://community.cchgroup.com/blog/The_SALT_Minds/Main_Street_Fairness_Act_Finally_Introduced_in_Congress/dmtyp00v00b1/96?nav=entry] in both houses of Congress at the end of July. However, California is not currently a member of the SST Agreement.


If Gov. Brown signs the bill, the Amazon provision will take effect on September 15, 2012 (if federal authority is not enacted on or before July 31, 2012), or on January 1, 2013 (if federal authority is enacted but California does not implement it on or before September 14, 2012). If federal authority is enacted and California implements it, the new implementation legislation would presumably replace the delayed  nexus provisions in the Amazon law.

 

After a delay that had people wondering whether it would even be seen in this Congress, the Main Street Fairness Act was introduced in both the Senate and House of Representatives on July 29. The Act would give the member states of the Streamlined Sales and Use Tax Agreement the authority to require remote sellers to collect their sales taxes. The pending legislation is essentially the same as bills that have been introduced in the last several Congresses, although language including tribal governments and the taxation of communications services was left out this time.

The initial sponsors in both houses are all Democrats, although some Senate Republicans have previously expressed support. Prospects for ultimate passage are uncertain. 

 

 

After vetoing a similar provision on May 31, Texas Gov. Rick Perry, on July 19, signed a law that says a retailer is doing business in the state if it has affiliates engaged in certain activities in <!<st1:State>><!<st1:place>>Texas<!</st1:place>><!</st1:State>>, such as maintaining a distribution center or a warehouse. According to reports in the general press, Amazon has been threatening to close a distribution center in the state if the law passes.


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Meanwhile, on July 18, the California Attorney General gave the green light to an effort backed by Amazon to gather signatures to put to the state’s voters a repeal of the sales tax nexus law  signed by Gov. Brown a few weeks ago. </font></p>

 

With Gov. Jerry Brown’s signature on June 28, California has now enacted a click-through nexuslaw. As it has done elsewhere, Amazon did not lose any time in terminating its affiliate programs in the state.

Meanwhile, the Texas Legislature has sent back to Gov. Perry the affiliate-nexus legislation he vetoed on May 31. This time the legislation is part of the budget bill passed in special session. Whether or not that will affect how the governor responds will be seen.

 

States apparently have still not lost the taste for the various flavors of “Amazon” legislation on offer throughout the nation.


 

Vermont legislation discussed in a previous posthas been enacted. Non-collecting retailers and online auction websites now must notify customers that their purchases may be subject to use tax in Vermont. This notice requirement will be automatically repealed once 15 states have adopted click-through nexusprovisions, at which point Vermont’s own click-through nexus law kicks in. Gov. Peter Shumlin also signed separate legislation requiring the state to set up a website to provide “matchmaking” opportunities for Vermont companies to affiliate with online retailers that collect and remit sales tax on purchases made online.


Texas Gov. Rick Perry vetoed legislation on May 31 that would have extended sales tax nexus to remote sellers with affiliates engaged in specified activities in the state. He called for further policy discussions with stakeholders. The bill, however, may be brought back up in the Legislature’s special session.


The California Assembly has passed separate nexus bills. One would enact a version of click-through nexus. The other would impose nexus on a retailer with an affiliate in California that solicits sales for the retailer, or that performs design or development services for property sold by the retailer. Both bills are now awaiting action in the California Senate.


Louisiana recently joined the club of states considering remote-seller nexus legislation. A bill that would enact click-through nexus and affiliate nexus provisions was introduced in the Louisiana House of Representatives on May 24.


Meanwhile, the Minnesota Legislature adjourned its regular session without passing the click-through nexus legislation that was pending there.

 

Connecticut has become the latest state in a growing list to enact a click-through nexus presumption. The provision takes effect July 1, as discussed in a previous post .

Meanwhile, Vermont may be the next state to take the plunge. On May 6, the Vermont Legislature sent the governor a click-through nexus bill with a twist. Non-collecting retailers would be required, beginning July 1, to notify customers that their purchasers may be subject to use tax in Vermont. This notice requirement would be automatically repealed once 15 states have adopted click-through nexus provisions, at which point Vermont’s own click-through nexus law would kick in.


Colorado may be going in a different direction. After initiating the latest trend in so-called Amazon laws with its reporting and notice requirements last year, the Colorado House voted on May 5 to repeal these requirements. In their place, the House would require non-collecting retailers with more than $500,000 in sales to notify purchasers of their potential use tax obligations.


Taking yet another path, both houses of the Texas Legislature have passed versions of legislation that would create nexus for out-of-sale sellers with affiliates engaged in certain conduct in Texas, such as operating a distribution center.

 

On April 18, the Executive Committee of the Multistate Tax Commission (MTC) unanimously approved for public hearing a proposed model statute based on the “Amazon” law that Colorado enacted in 2010. A federal district court has enjoined enforcement of that Colorado law at the request of the Direct Marketing Association while briefing begins on motions for summary judgment.

Under the MTC proposal, a seller that does not collect sales or use tax on items delivered to a state that adopts the proposed statute would have to provide: 


§ notice to customers at the time of the transaction that tax is not being collected and may be due by the customer directly to the department of revenue,


§ an annual report to each customer listing the general type and price of the customer's purchases on which tax was not collected, and


§ an annual report to the department of revenue of the total dollar amount of each in-state customer's purchases on which tax was not collected, including the name of the customer and the billing and shipping addresses.


      


Exceptions would exist for small sellers and sellers with de minimis in-state sales. Penalties would be imposed on sellers that do not comply.


 


A public hearing on the MTC's proposed model statute has been scheduled for May 18. The proposal and related information can be found at [http://www.mtc.gov/Executive.aspx?id=5078 | http://www.mtc.gov/Executive.aspx?id=5078]

 

On April 1, Arkansas became the latest state to enact a "click-through" nexus (also called an "Amazon") law. The state joins Illinois, which enacted such a law in March, and New York, North Carolina and Rhode Island, which have had such laws for a couple years.


In addition to the "click-through" provision, the Arkansas law includes a provision that an entity will be presumed to have sales tax nexus with the state if it has an in-state affiliate that is part of the same controlled group of corporations and certain conditions are met. 

 

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