An Indiana married couple was recently assessed additional tax when the Indiana Department of Revenue determined that they did not qualify as professional gamblers. The State’s assessment is a result of a Federal adjustment. Professional gamblers report their winnings, losses, and expenses on Schedule C, which typically results in a lower income tax liability. The IRS’s denial of the taxpayer’s protest of their categorization as casual gamblers was adopted by the State without further analysis.
A Virginia Ruling of the Commissioner recently explained how the Virginia Department of Taxation would interpret and enforce a new nexus law passed this last year. Remote sellers that have inventory stored in a third party warehouse located in the State are deemed to be dealers in the State. This law appears to be intended to apply to remote sellers using Amazon fulfillment services or the like.
Are you considering doing business or having employees in the state of Illinois? Have you had issues with your state tax filing? Join us on March 30 to learn more about Illinois sales and income tax filing considerations. Click here to learn more and to register.
Effective July 1, 2017, Colorado required an out-of-state retailer whose total gross sales into Colorado are $100,000 or more, and who does not collect Colorado sales tax, to give a transactional notice to their Colorado purchasers that sales tax has not been collected and that use tax may be owed. Additionally, if any of their Colorado purchasers purchased more than $500 worth of products in a calendar year, then a Purchase Summary must be mailed to that purchaser and a corresponding Informational Report given to the Colorado Department of Revenue.
Noteworthy Changes with Permanent Rule
Colorado has recognized that some out-of-state retailers making online sales utilize third party payment processing vendors. Previously, to give a transactional notice, an online retailer would be required to display a transactional notice on the “check out” page. However, for retailers that use a third party payment processor, they may not have control of the content that is on the “check out” page. Therefore, those retailers can now give the transactional notice on the “product page” of their website.
For retailers that utilize subscription type sales such as a “Jelly of the Month Club,” Colorado has clarified the notice requirements. For subscription type sales, a transactional notice is only required when the purchaser enrolls in the subscription or renews it.
The maximum penalty limitation given to out-of-state retailers for the first year that they are required to comply, has been removed. Now, if an out-of-state retailer fails to comply with Colorado’s Notice and Reporting rules they will have to show that they “reasonably had no knowledge” of the requirement, to be subject to a maximum penalty.
Unlike Washington, Colorado does not directly impose a duty to either collect sales tax or comply with their Notice and Reporting requirement on marketplace providers, such as Ebay. But, sellers (with gross sales of $100,000 or more), that utilize online marketplaces, are still required to comply with Colorado’s Notice and Reporting requirement regardless of their use of a marketplace provider platform. However, the permanent rule allows marketplace providers to satisfy the Notice and Reporting requirements on behalf of the sellers.
Colorado has indicated that online retailers must include certain elements in the transactional notice. Sample language would include the following:
[Name of retailer] does not collect Colorado sales or use tax. This purchase is not exempt from Colorado sales or use tax merely because it is made over the internet or by other remote means. The State of Colorado requires purchasers to (A) report all purchases that are taxable in Colorado and for which no tax was collected by the retailer and (B) pay tax on those purchases.
The permanent rule will be effective on January 1, 2018.
If your company makes sales into Colorado without collecting sales tax, contact Eide Bailly’s State and Local Tax Team for assistance with how to comply with Colorado’s Notice and Reporting requirements.
Starting January 1, 2018, similar to the State of Colorado, the State of Washington has created a new sales tax reporting requirement where retailers must issue a notice to the buyer saying “use tax” may be owed. Businesses with more than $10,000 in WA sales (compared to Colorado’s $100,000) will be required to comply. Remote sellers must either collect and remit tax or adhere to the reporting requirements.
The seller must notify the purchaser at the time of purchase and then send a follow-up notice by February 21 of the year following the year of the original transaction. A detailed notice must also be sent to the State of Washington by February 28 of the following year with an officer signed affidavit. In addition, “use tax may be owed” language needs to be included on seller advertising materials, which would include the seller’s website. The seller also needs to furnish year-end information to the purchaser and the state, to inform the purchaser that the State of Washington requires the purchaser to file a use tax return.
Penalties for non-compliance start at $20,000 and can grow to over $100,000.
But, the debate continues. Watch for additional information as states create ways to collect more sales and use tax from remote/online businesses for sales within their state. These new rules make for an added layer of compliance and complexity that businesses often overlook and/or lose track of. Contact your Eide Bailly professional or a member of our State and Local Tax Team for assistance.
As more businesses enter the online marketplace to sell goods across borders, states are creating laws to capture sales tax for online transactions. Recently, both Connecticut and Mississippi have enacted new tax laws targeting out-of-state e-commerce sellers. Check out the following articles to learn more:
State and local tax rules are in constant flux, and it can be difficult to stay on top of all of the current developments. Luckily, we’re here to help. Check out our recent article to learn more about some current hot topics, including sales tax reporting requirements, economic standards, and more!