New Tax Laws Enacted in CT & MS

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:

Connecticut to Tax Web Cookies
Mississippi to Tax Out-of-State Sellers

Alabama Attacks Physical Nexus Presence Standard

Just as several times before in United State Supreme Court jurisprudence, a brief and simple statement can garner a great deal of analysis and debate.  Recently, as part of his concurring opinion in Direct Marketing Association v. Brohl, Justice Kennedy commented that the Court’s 1992 Quill v. North Dakota, 504 U.S. 298 decision is ripe for reevaluation.  As evidenced by its newest Rule (Ala. Admin. Code 810-6-2-.90.03), it appears Alabama has grown impatient. The Rule, in short, disregards Quill’s physical presence nexus standard for sales and use tax purposes.  Effective for transactions occurring after 1/1/2016, the new Rule will require out-of-state sellers to register, collect and remit sales tax if:

  1. The seller’s retail sales of tangible personal property sold into Alabama exceed $250,000 per year based on the previous calendar year’s sales; and
  2. The seller conducts one or more of the activities described in Ala. Code § 40-23-68 (which sets out a series of wide reaching in-state activities involving ownership of property, the presence of representatives, the qualification/authorization to do business, direct advertising, or franchising/licensing activities).

The above Rule establishes an economic nexus presence standard for sales tax.  Clearly, Alabama is attacking Quill’s physical nexus presence standard head on (even though Quill is still, technically, good law)!  Only time will tell how this will play out in the courts.  In the meantime, out-of-state sellers should evaluate their Alabama-destined sales, be prepared to comply with the Rule, and consider filing protective refund claims.

The Rule can be found here: https%3A%2F%2Frevenue.alabama.gov%2Frules%2F810-6-2-.90.03.pdf&usg=AFQjCNE0uDNQY6K4e2Fi8ODHGB0Fpj-6yQ

Online Travel Companies Are Providers of Hotel Accommodation in Arkansas

The Arkansas supreme court upheld a circuit courts order certifying that online travel companies are providers of hotel accommodation and therefore are required to collect and remit sales tax. Read the desicion:

opinions.aoc.arkansas.gov/weblink8/0/doc/318345/Electronic.aspx

Major Issues with Colorado’s MFA Compliance

In the event that the Marketplace Fairness Act (MFA) passes, many states must first make some changes to their tax codes before they can collect sales tax from internet retailers. These changes mainly deal with either complying with the streamline sales and use tax agreement, or making specific changes to their tax code that includes establishing a uniform sales and use tax base, and uniform tax definitions. In anticipation of the MFA passing, Colorado passed House Bill 13-1288 that requires the Colorado Department of Revenue (DOR) to work with municipalities and counties in order to create a uniform sales and use tax base as well as uniform tax definitions. Based on a stake holder meeting held by the DOR the following issues will be brought up in their report:

1)      The tax on food for home consumption and residential power account for a majority of the local jurisdictions’ revenue;

2)      In order for local jurisdictions to remain solvent and revenue neutral without experiencing huge tax increases, the State would have to remove the exemption for food for home consumption and residential power;

3)      The State currently taxes cigarettes while local jurisdictions do not.  By taxing cigarettes at the local level, this would bring an offset of additional revenue to the local jurisdictions (approx. $30.5 mill);

4)      Certain items that are currently taxed by the locals would need to be exempted.  The DOR preliminarily identified the following few items:

  • a.       Industrial energy;
  • b.      Agricultural compounds & bull semen;
  • c.       Pesticides;
  • d.      Corrective eyeglasses, hearing aids;
  • e.      Wireless Telecomm Equipment.

5)      The report will also make recommendations for creating uniform tax definitions for all items taxed or exempted and would use a majority of the definitions found in the Streamlined Sales Tax agreement (SST) www.streamlinedsalestax.org;

This information was provided by the Colorado Association of Commerce and Industry.

 

Federal Principles Regarding Internet Sales Tax

On September 18th the House Judiciary committee laid out the following principles regarding remote sales tax:

Basic Principles on Remote Sales Tax

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

6. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

7. Privacy Rights – Sensitive customer data must be protected.

http://judiciary.house.gov/news/2013/09182013.html?goback=%2Egde_797027_member_274772552#%21

Sales Tax Holidays

An article from the tax foundation takes a look at the effectiveness of tax holidays. Tax holidays are specially designated periods of time where the state government forgives sales tax on certain items. Items can include clothing, back to school supplies, hurricane preparedness items, etc. These holidays have a certain political appeal, but as the article points out, they are actually riddled with problems. They do not promote economic growth but simply change the timing of when they are purchased; they create complex tax codes; many businesses raise prices during the holidays; the cost of complying is often more than the benefit that a business receives–the list goes on.

To read more visit:

http://taxfoundation.org/article/sales-tax-holidays-politically-expedient-poor-tax-policy-2013

Combined Sales Tax Rates

Sales tax can be tricky, especially when you are analyzing combined sales tax rates (state rate plus city or local rate).
In some states (Delaware, New Hampshire, and Oregon) you will find no sales tax. In others (Alaska, and Montana) you will find no State sales tax but you may be charged local sales tax.

In many states you can cross the street, and be subjected to a completely different set of sales tax rules.

The highest average combined rates (highest to lowest) are in Tennessee, Arkansas, Louisiana, Washington, and Oklahoma. The lowest are (lowest to highest) Alaska, Hawaii, Maine, and Wisconsin.

The highest combined rate is in Tuba City, Arizona (%12.725), though Homer and Seldovia, AK, and Snowmass, CO have a higher local rate (7.5%)

The list goes on, and the people at the Tax Foundation have done a very good job analyzing this data. To see the article and read more visit:
http://taxfoundation.org/article/state-and-local-sales-tax-rates-midyear-2013