Due to overwhelming demand of businesses wanting to participate in the program, the Multistate Tax Commission has extended the application and registration deadlines for its voluntary disclosure initiative for online marketplace sellers from October 17 to November 1, 2017. The program provides relief from tax liability, interest, and penalties for sales and use tax, income/franchise tax, or both. Taxpayers filing a timely application are now allowed 30 days after receiving notice that the taxing state has signed a voluntary disclosure agreement to register with the state.
As previously noted, states’ push to obtain tax revenue from remote sales has been a hot topic this year. Recently, the South Dakota Supreme Court issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The court opinion stated that “Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.”
The State of South Dakota took action immediately and on October 2, 2017, filed a state petition asking the U.S. Supreme Court to reconsider the 25-year-old Quill opinion. This is the first state petition of its kind but unlikely to be the only one.
“The retail landscape significantly changed with the inception of the internet and access to online shopping. Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses,” said State Attorney General Marty Jackley in a press release announcing this petition.
Colorado and Alabama have pushed back against Quill Corp. v. North Dakota. Other states are imposing use tax notification and reporting requirements for out-of-state sellers in order to work around the physical presence precedent upheld by Quill. Some are enacting a tax on marketplace providers.
It’s clear that this will only be the start of cases asking the U.S. Supreme Court to revisit Quill.
The South Dakota Supreme Court on September 13, 2017 issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The Court stated:
“However persuasive the states [SD] arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it “has direct application in a case” and to leave to that Court “the prerogative of overruling its own decisions.”
The opinion was rendered on appeal by the State of South Dakota to challenge a lower court decision that the recently enacted South Dakota sales tax law requiring sales tax to be collected on sales where no physical presence was maintained by the seller was unconstitutional according to the US Supreme Court ruling in North Dakota v. Quill Corporation.
The quick, taking only 16 days, negative decision rendered by the South Dakota Supreme Court may have been what the State of South Dakota was hoping for. The decision now allows the State of South Dakota to move this highly sensitive sales tax issue once again back to the US Supreme Court to revisit the issue of physical presence now that many more years of internet activity will be available for their arguments. And, as the South Dakota Supreme Court noted, provide the US Supreme Court the opportunity to overrule their decision in Quill.
Contact your Eide Bailly professional or a member of our State and Local Tax team to discuss your sales tax filing obligations.
The Texas Comptroller’s Office has posted sales tax rules and regulations for disaster recovery. Many taxable items, including services, are now temporarily tax exempt as part of the hurricane Harvey cleanup. Learn more about tax filing extensions, and FAQs related to hotel tax and sales tax in information the comptroller has shared on their website. In addition, out-of-state businesses performing disaster or emergency related work at the invitation of an in-state business is also exempt from tax. Learn more here.
More States Participating in Voluntary Disclosure Program
Eight more states have joined in the Multistate Tax Commission Voluntary Disclosure Program, a program beneficial for taxpayers who sell through online marketplace arrangements. The voluntary disclosure program is designed to encourage the future collection of sales, use, income and franchise tax from taxpayers, while allowing relief of various taxes, depending on the state. Read more.
However, many online sellers working through fulfillment centers, may not know how to locate where they have inventory being stored and whether or not they have a filing obligation. Noted in Amazon Seller Central, a seller can pull the Inventory Event Detail Report to identify where inventory is being stored before sale. The steps are: Seller Central – Reports – Fulfillment – Inventory Event Detail Report
Currently twenty-three states and Washington D.C. are participating in the program:
(The highlighted states have an Amazon fulfillment center.) States with a * were added after our previous announcement.
- Colorado will waive any back tax liability for uncollected sales/use tax. However, Colorado will not waive the back tax liability for income tax beyond its normal four-year look-back period. Colorado notes that it already has a small seller income tax nexus exception for sales less than $500,000 into the state.
- Connecticut is requesting customer lists for the past three years from online retailers. Failure to provide the list will result in a $500 penalty. These notices are being sent out with the online retailer being provided with the opportunity to provide the information or register for sales tax.
- * District of Columbia’s standard look-back period is 3 years for sales/use and income/franchise tax. D.C. will consider granting shorter or no look-back period for applications received under this initiative.
- * Florida
- * Massachusetts requires compliance with its standard 3-year look-back period; this look-back period in a particular case may be less than 3 years, depending on when vendor nexus was created. Massachusetts also requires that vendors register, file and pay electronically through Mass Tax Connect, in compliance with TIR 16-9.
- * Minnesota’s customary look-back period is 3 years for sales/use tax and 4 years (3 look-back years and 1 current year) for income/franchise tax. Minnesota will grant shorter look-back periods to the time when the marketplace seller created nexus.
- * Missouri
- Nebraska will consider waiving back tax liability for uncollected sales/use tax and income tax.
- New Jersey notes that the storage of inventory by a partnership or a sole proprietor in New Jersey does not trigger nexus for gross income taxes.
- North Carolina will consider applications for participation in the initiative made by all online marketplace sellers, including those that have been contacted by the Department concerning their liability or potential liability for sales and use taxes, income, and franchise taxes.
- South Dakota imposes sales/use tax but does not impose income tax.
- * Tennessee’s business tax, as well as sales/use tax and franchise and excise tax, are included in this initiative.
- * Texas
- * Wisconsin will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax.
Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.
Iowa has a unique tax break for business owners who sell their businesses or business real estate. Iowa exempts the resulting capital gains from state income taxes if at the time of the sale:
- The taxpayer had held the property for ten years, and
- The taxpayer had “materially participated” in the business for the ten years preceding the sale.
The technicalities of this rule tripped up a retired Iowa farmer when he sold his land in a recently-released Iowa administrative decision.
The taxpayer farmed in northern Iowa from 1978 through 2002. In 2002 he swapped farmland in a qualified like-kind exchange. That’s OK, as the holding period of the old farm tacked on to the new farm received in the swap.
The taxpayer stopped actively farming and started cash renting the land in 2004. He turned 62 in 2008, and he started collecting Social Security benefits. He continued renting through 2009. He sold the land in December of 2010 and claimed the Iowa capital gain exclusion on his 2010 Iowa return. There’s where his problem started.
Iowa’s capital gain exclusion uses the “material participation” definition from the federal “passive loss” rules. These rules are generally based on the amount of time a taxpayer spends on an activity in a year.
A special rule considers retired farmers to continue to materially participate forever if they materially participated under the hours rules for five of the eight years before they retire or become disabled. In the year at issue, 2010, retired or retirement was not defined in Iowa law related to the capital gains exclusion. However, at that time, the Iowa Department of Revenue “concluded and regularly advised” that a person retired upon receiving Social Security benefits. This concluded and regularly advised position on retirement was adopted as an amendment to Iowa law in 2012.
The ruling explains how this applied to this farmer:
Mr. Brandt stopped actively farming the land in 2004, began receiving Social Security old-age benefits in 2008, and sold the land in 2010. Brandt did not materially participate in farming the land five or more of the last eight years before he became a retired farmer by receiving Social Security old-age benefits. He was not entitled to claim a capital gain deduction for proceeds from the sale of the replacement farm under the retired farmer provision.
With the run-up in farmland prices in recent years, the Iowa capital gain exclusion can be a big deal, considering the states 8.98% top individual tax rate. It’s important for Iowa farmers to think this through in their decisions on whether to cash rent and when to sell out.
Iowa’s capital gain break doesn’t apply just to farm real estate, but to all real estate used in a business. It can also apply to a sale of an entire business in an asset sale or liquidation.
An Eide Bailly tax specialist can help you determine whether this break will work for you.