More on Marketplace Fairness Act (S. 743)

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act, allowing states to collect sales tax from some remote sellers (see May 8, 2013 post). I don't think this bill will be enacted quite in this form. If passed in the House, I think it will be modified to address some oddities regarding the small business exception. The current version of the bill provides that if the seller has remote sales of $1 million or less, it doesn't have to collect in those states. Remote sales are ones where without this legislation, the seller would not be required to collect (states where it has no physical presence). 

I note one oddity in the May 8 post, another is the size differential that could exist on who has to collect and who does not. 

Example: ABC primarily has sales in CA - $50 million per year. It also has a few sales outside of the state, totaling $600,000.  ABC only has to collect in California, assuming it has no physical presence elsewhere.  In contrast, XYZ has $800,000 of sales in California and that is the only place where it has a physical presence. It has sales outside of CA in about 20 states and those sales total $1.2 million.  XYZ has to collect in all of those states.

Seems odd and a significant compliance burden for the relatively small XYZ in comparison to the very large ABC. A possible solution is to also have a de minimis rule for sales within any one state. Another is to limit the small seller exemption to truly small sellers so that ABC needs to collect onall of its sales.

I've got a short article in the AICPA Tax Insider this week (5/16/13) on S. 743 and its basic operation and some of its issues - Marketplace Fairness Realities.

What do you think?

Nexus Oddities of the Marketplace Fairness Proposal

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act (69-27). That is the farthest this bill has gotten in the past almost 20 years. President Obama has indicated he supports it, but it's not clear if the House will act upon it or pass it.

Basically, this bill provides a mechanism where states can become authorized to collect sales tax from remote (non-present) vendors.

A "remote sale" is one where the vendor "would not legally be required to pay, collect, or remit State or local sales and use taxes unless provided by this Act." A small seller exception applies for vendors with remote sales of $1 million or less in the prior calendar year.

S. 743 does not eliminate the longstanding, difficult issues of determining whether a vendor has sales tax nexus in a state. For example, if an employee is in the state for two days to help a customer, is nexus created? If yes, the vendor has sales tax collection obligations even without S. 743. If nexus is not created, sales into that state are used to determine if the vendor meets the small seller exception. Errors in knowing if a vendor has nexus may become more significant with S. 743. 

Example: In 2013, I-Vendor, located in State X, has $2 million of sales to customers in State X. I-Vendor also has $900,000 of sales to customers in six states in which it does not have nexus. Under S. 743, I-Vendor is a small seller that only needs to collect sales tax in State X.  

In 2014, I-Vendor obtains new customers in State Y with total sales of $200,000. Other sales remain the same as for 2013. I-Vendor is not sure if it has nexus in Y. If it does have nexus in Y, it must collect from customers in X and Y and remains a small seller. If it does not have nexus in Y, I-Vendor is no longer a small seller and now must collect sales tax in all authorized states, starting in 2015. If all of the states in which I-Vendor has sales are authorized to collect under S. 743, I-Vendor has filing obligations in 7 more states starting in 2015.

An oddity of the above is that any of the six states would benefit if I-Vendor does NOT have nexus in State Y.  That is, that those sales are remote ones that push I-Vendor out of the "small seller" exception.Might any of those states pursue I-Vendor arguing it has no nexus in State Y?

Also note that "small seller" could actually be a very large vendor with nexus in one state and aggregate sales in states where it does not have sales tax nexus remaining under $1 million.  Meanwhile, a smaller vendor operating out of one state with sales in other states in excess of $1 million, has to collect in all of these states even though its aggregate sales are less than that of the large vendor who might actually have more resources to handle multistate sales tax compliance.  Perhaps there should be another measure of small that looks not only at remote sales, but also total aggregate sales.

Nexus questionnaires would still be needed and likely used by the states. When a vendor says it has total remote sales of $1 million or less, any of these states would benefit from a finding that the vendor actually has a physical presence in the state because then it has to collect.

What do you think? 

For more on S. 743 and other similar proposals, see this part of my Affiliate Nexus website. 

  

Top Ten Tax Developments of 2012

Here are my recommendations for a Top Ten Tax Developments List for 2012:

1. The Fiscal Cliff and Year-End Tax Legislation
2. Calling for Comprehensive Tax Reform
3. The Supreme Court Weighs in Favorably on Part of Health Care Legislation
4. Due Diligence Reminders for Charitable Contributions
5. Lengthy and Intricate IRC §1411 Proposed Regulations
6. Postponement of the Lengthy and Intricate Repair Regulations
7. Possible FICA Tax Refunds
8. Likely Elimination of the Need for Overused Practitioner's Email Disclaimer
9. Apportionment of Business Income and the Relevance of the Multistate Tax Compact
10. Moving Closer to Federal Action on State Sales Tax Nexus

Please click here to read my short article from the AICPA Tax Insider with the details of the above items.

Comments?  What might you have included instead?

What if North Dakota Had Won at the US Supreme Court 20 Years Ago?

If Justice White had been able to convince four of his fellow justices to rule for North Dakota in the Quill case, I think we'd have a different sales/use tax system for multistate businesses today.  Based on what happened in 1959 following a state victory in a multistate income tax case, perhaps Congress reacts better to a perceived crisis than to one where it is not entirely clear on what the problem and solution are.

To read more, please see my post at SalesTaxSupport.com - "Main Street Fairness: Different Story (& Timeline) If ND Had Won In Quill," (10/9/12).

What do you think?

Are the Main Street Fairness bills simple enough?

In 1992, the US Supreme Court noted the complexity of multistate sales tax compliance stemming from the reality that the rules among the 6,000+ jurisdictions that impose the tax were not completely similar (Quill). The Stremalined Sales & Use Tax Agreement used by several states has technology and third party approaches to make it easier to collection in multiple states, but not all states have adopted the SSUTA.

There are three different bills in Congress to allow states to required remote vendors to collect sales tax from customers in their state. Are standards they require states to meet to be able to collect enough to make this as simple as needed to be cost efficient and effective?

I have a post on SalesTaxSupport.com with more details and questions - I hope you'll check it out - here.

Amazon collecting more sales tax - Relevance to Congress?

There have been recent news stories about Amazon starting to collect sales tax in some states.

• Texas on July 1, 2012 as part of an agreement to expand in Texas (see Statesman.com of 7/29/12)
• Nevada in 2014 (see Las Vegas Sun of 4/23/12)

And, per legislation enacted in 2011 in California (AB 155), Amazon is to start collecting sales tax on  September 15, 2012 (January 2013 should the feds enact legislation "authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller").
AB 155 also provides: "The Director of Finance shall, on or before August 15, 2012, certify in writing to the Governor, the Senate Committee on Rules, the Speaker of the Assembly, and the State Board of Equalization whether or not federal law has been enacted on or before July 31, 2012, authorizing the states to require a seller to collect taxes on sales of goods or services to in-state purchasers without regard to the location of the seller."

I assume the above is a formality and on the "to do" list for the Department of Finance.  Given it is election year and Congress has many things on its plate, it seems unlikely they will enact any of the current versions of the Main Street Fairness legislation (for details on the proposals, click here.)

Also note that the California Board of Equalization is working on revising Reg 1684 to address AB 155 changes to R&T Section 6203.

So, what is the effect on Congress' interest in enacting legislation to, in effect, overturn the Quill decision and let states that have satisfied certain simplification requirements to collect sales tax from non-present vendors?  One of the Main Street Fairness proposals (H.R. 3179) has such a high de minimis threshold ($1 million) that it will allow the majority of internet vendors who do not already have nexus in particular states to continue to be exempt from collecting sales tax. Thus, it seems that the bill is really after the larger vendors, such as Amazon.

What do you think?  Do you think Congress will pass on a Mainstreet Fairness Act proposal if it sees that Amazon is collecting tax in more states?   What about if states are also making better efforts to collect use tax?

What about simplification to make collection of all sales and use tax a no brainer? (such as having the customer's credit card or Paypal account charged by the state for the sales tax at time of purchase?)

Governor support of Main Street Fairness legislation

On 6/10/12, The Hill reported - "GOP governors bolster online sales tax push," by Becker and Bogardus. This article notes that some Republican governors are supporting enactment of one of the Main Street Fairness bills. These governors include New Jersey Governor Christie and Iowa Governor Branstad and perhaps 10 more. The story reports that opponents to the governors' stand are some who say they should not be focused on increasing tax revenues but cutting spending.

I continue to be surprised and dismayed that people call collecting sales tax from sellers a tax increase.  So far as government revenues, in theory, they are the same whether the customer self-assesses and pays the use tax or the vendor collects and remits the sales tax. Of course, the government is more likely to get funds if the vendors handle collection rather than rely on millions of consumers to self-assess.

The vendors need a simple state sales tax system with simple reporting AND they should get some reimbursement from the states for collecting and remitting the tax. The three versions of the main Street legislation need to be reviewed to be sure they have these reforms. Discussion is also needed on the definition of a small vendor who should be exempt.  The current bills, provide definitions of under $100,000, under $1 million and under $500,000. That's a significant variation.

For more on the bills, see my Affiliate Nexus website. The House Judiciary Committee is expected to have another hearing on the topic in July.

What do you think?

Mainstreet Fairness, Small and Equity

The House Judiciary Committee hearing of November 30, 2011 on federal legislation to allow states meeting certain simplification requirements to collect sales tax from remote vendors highlighted a key issue. The issue is whether such legislation should exempt small sellers and if yes, what is the appropriate de minimis level. At the hearing the suggestions for "small" seller were basically $100,000 of sales and $30 million of sales, with nothing in between (other than the $500,000 in S. 1832). How can the definitions be that disparate?

While there are good reasons for exempting small businesses from certain rules, defining small is challenging. The federal tax law has numerous definitions (see "The Many Sizes of "Small," AICPA Corporate Taxation Insider, 10/28/10).

The reasons for suggesting a low dollar amount for "small" ...

• Ensure that the bulk of e-commerce sales are subject to the tax.
• Reality that there are third party collection agents and software that make it easier for small businesses to collect sales tax from all customer.
  

Reasons for a larger dollar amount for "small" ...

• To ensure that small businesses have greater likelihood of succeeding against large vendors.
• Costs to comply may exceed tax to be collected.

$30 million for small - saying that sellers below this threshold cannot collect sales tax from customers is puzzling. These are decent size companies that likely engage in many sophisticated transactions that are more complicated than setting up a system to collect sales tax in all states with customer (or at least those that meet the simplification requirement of the legislation).

One item I did not hear mentioned at the hearing (I watched the archived webcast) was that some good number of sellers, such as on eBay, are not in a business and would not be registered to collect sales tax. Customers will still need to maintain records of such purchases and self-assess the use tax.

I have a short article in the AICPA CPA Insider on the hearing and the small/equity issue - "Repeal of Quill Hinges on Defining Equity."

What do you think the sales level should be to define any small business exempt from collecting sales tax in states in which it doesn't have a physical presence?