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Tuesday, June 21, 2011

Texas, South Carolina and Internet sales tax collection

A story in the Statesman.com on 6/20/11 describes a "deal" Texas lawmakers are considering that would likely entice Amazon to have a distribution center in Texas and create at least 5,000 jobs and invest at least $300 million (Harrell, "Amazon, state talk deal: 5,000 jobs in exchange for exemption on collecting sales tax"). The deal part comes in that any company that provides the jobs and investment won't have to collect sales tax for next 4 1/2 years.

South Carolina is one step ahead because S. 36 became law on June 8, 2011 without the governor's signature. Under this new law, "owning, leasing, or utilizing a distribution facility, including a distribution facility of a third party or an affiliate, within South Carolina is not considered in determining whether the person has a physical presence in South Carolina sufficient to establish nexus with South Carolina for sales and use tax purposes." Wow!

But there are some caveats for obtaining this South Carolina benefit:
  • The distribution facility must be placed in service after 2010 and before 2013.
  • During this time period you must make a capital investments of at least $125 million and create at least 2,000 fill time jobs with a "comprehensive health plan."
  • After meeting the above, you must maintain at least 1,500 full-time jobs with the health plan until 1/1/16.
  • For Internet sales made, you must give this notice to the buyer: "YOU MAY OWE SOUTH CAROLINA USE TAX ON THIS PURCHASE BASED ON THE TOTAL SALES PRICE OF THE PURCHASE. YOU MAY VISIT WWW.SCTAX.ORG TO PAY THE USE TAX OR YOU MAY REPORT AND PAY THE TAX ON YOUR SOUTH CAROLINA INCOME TAX FORM."
  • By February 1 of each year, you must provide via first class mail or email to each person to whom tangible goods were delivered in the state a statement of total sales. "The statement must contain language substantially similar to the following: 'YOU MAY OWE SOUTH CAROLINA USE TAX ON PURCHASES YOU MADE FROM US DURING THE PREVIOUS TAX YEAR. THE AMOUNT OF TAX YOU MAY OWE IS BASED ON THE TOTAL SALES PRICE OF [INSERT TOTAL SALES PRICE] THAT MUST BE REPORTED AND PAID WHEN YOU FILE YOUR SOUTH CAROLINA INCOME TAX RETURN UNLESS YOU HAVE ALREADY PAID THE TAX.'" The nature of the goods must not be included.

Observations:

  • If these states can improve use tax collection by their consumers, they will still collect the sales tax on transactions by the vendor with in-state buyers. And it will have increased revenue from sales tax paid by the workers and property taxes on the facilities, as well as increased personal income tax in South Carolina (Texas doesn't have an income tax).
  • Will this type of deal send a message to Congress that states are not that interested in getting remote vendors to collect sales tax?
  • As one person quoted in the Texas article notes - are these the best type of jobs for Texas - will it help advance their economy?
  • Why not offer some other type of incentive (if these states really thinks this is the only way to get business investment) and require that the vendor collect sales tax from in-state customers? Why not an incentive to help the vendor set up systems to be able to collect the sales tax?
  • Why not implement better technology approach to collecting the sales tax (I've suggested ones before - here and more recently).
  • How will this open the door to other businesses requesting exceptions from the Quill physical presence standard in Texas and South Carolina?

3 comments:

Back Year Taxes said...

With all the states looking for increased tax revenues, I think we are bound to see this happening across the country. I don't think this is much of a surprise

Unfiled Tax Returns said...

This is just the start. Maybe there will even be a national sales tax?

Filing Old Tax Returns said...

These states will do anything for revenues.