Tennessee rules for sales tax on vacation rentals

While budgeting for travel, plan on paying sales tax on vacation rentals through companies like Airbnb

tax on rentals

Many people have turned to their spare bedrooms as source of additional income but sales tax on vacation rentals is a new fly in the ointment that renters in several states may have to deal with. Websites like Airbnb and VRBO allow anyone to list their properties for short-term rental. Travelers then book rooms through the website, which in turn deducts its fees from the money paid to the renter.

But as these services have become more popular, officials in a number of states have questioned whether sales tax should apply to these transactions. About a half dozen states currently require Airbnb and its competitors to collect local sales and hotel occupancy taxes. Just recently, Tennessee’s top law enforcement official said the Volunteer State should be one of them.

Earlier this year, a member of the Tennessee legislature asked state Attorney General Herbert H. Slatery III for an official advisory opinion to answer three questions. The first was whether Tennessee sales tax was due on “short-term rentals of homes, apartments, and rooms” arranged through websites. The second question was whether such rentals qualified as “hotels” subject to additional state and local tax on occupancy. And finally, assuming such taxes are due, who is responsible for collecting them?

On December 1, Slatery issued his opinion. Under Tennessee law, sales tax is assessed on any “sale, rental or charges” for any “accommodations” furnished to a person for less than 90 continuous days. The attorney general said the types of services offered through Airbnb and VRBO fit that description. However, Slatery also said only those “individuals who regularly or frequently rent their homes on a short-term basis” were liable for collecting sales tax. Individuals who only rent rooms through a website “infrequently or irregularly” are not subject to tax.

Slatery further determined individuals who regularly rent out rooms in their homes are effectively operating “hotels,” which are subject to varying levels of occupancy tax depending on the specific Tennessee county. By law it is the homeowners, not the third party websites, who are liable for collecting the tax since they are the “operators” of the hotel. And unlike the general sales tax, occupancy taxes must be collected even on “occasional” or “isolated” short-term rentals.

But as the attorney general noted, Airbnb and similar websites allow individual renters “to set the price of the rental and to specify any taxes that are due from guests.” Therefore he did not expect compliance with Tennessee sales and occupancy tax laws to be “overly burdensome” for people who rent rooms.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

Internet sales tax rears its ugly head in the House

The Marketplace Fairness Act is dead, long live the Remote Transactions Parity Act?

Internet sales tax

Conservatives say the Remote Transactions Parity Act is just another Internet sales tax that equals taxation without representation.

On June 15th House Oversight Chairman Jason Chaffetz (R-Utah) introduced a new Internet sales tax bill he’s calling the Remote Transactions Parity Act (RTPA). The bill is similar to the Marketplace Fairness Act which died in the House last year. Supporters say this version has critical improvements as well as the support of some major players.

RTPA would require sellers without a physical presence in a state to collect sales tax on eligible transactions based on the going rate at the location of the consumer. The bill would also require states to simplify their tax codes, and pay to set up, install and maintain software for remote sellers to collect sales taxes.

According to the National Law Review, states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA) would be automatically eligible to impose sales and use taxes on remote sellers. States that are not SSUTA members, about half of the states in the union, could be authorized to require retailers without nexus in the state to remit sales and use taxes on sales if they met the following simplification requirements:

  1. destination sourcing for interstate transactions;
  2. a single entity for administration of sales and use tax;
  3. a single audit of remote sellers per state;
  4. a single return per state;
  5. uniform tax base for all state and local sales taxes within the state; and
  6. relief for errors, including remote sellers being relieved of errors made by a certified software provider or the state itself, and certified software providers being relieved of errors made by a remote seller or the state itself

The bill has bipartisan support as well as the backing of some of the major players in the industry: Amazon, Overstock and the National Retail Foundation.

The RTPA isn’t enjoying unanimous support however. Dissent comes mainly from withing the split Republican party with conservatives labeling this as a tax increase or an Internet sales tax, and that it amounts to taxation without representation.

House Judiciary Chairman Bob Goodlatte (R-Va.) circulated his own draft proposal last January calling for the sales tax rates to be based on the retailer’s location. Goodlatte has also expressed concerns about protecting small businesses from audits, and that exempting certain small sellers would make a bill too complicated.

The RTPA differs from the MFA in that the small seller exemption starts at $10 million or less and gradually phases out over time. MFA’s exemption is continuous for sellers making less than $1 million. The RTPA also provides audit protection for sellers grossing less than $5 million unless there is reasonable suspicion of fraud.

RTPA faces opposition from its own set of power players: NetChoice, the R Street Institute and Americans for Tax Reform.

While the Marketplace Fairness Act managed to pass through the Democrat-led Senate in 2013, Speaker John Boehner (R-Ohio) and Senate Majority Leader Mitch McConnell (R-Ky.) have shown no interest in debating the bill this year even though it has been reintroduced.

Florida business uses U.S. Constitution Commerce Clause

Commerce Clause

Commerce Clause

American Business wins state sales tax thanks to Commerce Clause

Florida was rebuffed in its efforts to impose state sales tax on an in-state business which was acting as an online portal for web purchases for out-of-state florists delivering to out-of-state purchasers.

As Congress holds off on extending Internet sales taxes, state courts continue to deal with how to apply local tax laws to online sales. Recently a Florida appeals court rebuffed the state’s effort to collect sales tax from an Internet-based small business that sells flowers, gift baskets and prepaid calling cards to customers in Latin America. The court held such non-Florida business activities were beyond the reach of state tax collectors.

Florida’s Department of Revenue initially assessed three years of unpaid sales taxes against American Business USA Corp., a Florida-based corporation that operates a Spanish-language website targeting customers in Florida, Spain and Latin America. The company merely served as an online sales portal; it did not maintain any inventory. So, for example, if a customer in Latin America purchased flowers through the website, the company arranged for a local florist to fulfill the order.

American Business paid Florida’s sales tax  on sales to customers within the state but it did not pay tax on orders to customers outside of Florida. The Department of Revenue said this violated state law. Specifically, Florida imposes tax on all sales of “flowers, wreaths, bouquets, [and] potted plants.” This extends to sales where a Florida-based florist “gives telegraphic instructions to a second florist located outside Florida for delivery of flowers to a point outside Florida.”

On appeal from the department’s assessment, American Business argued the state’s policy was preempted by the United States Constitution. A three-judge panel of Florida District Court of Appeal agreed. In a decision issued on Nov. 12, the court said requiring collection of sales tax on out-of-state deliveries violated the Commerce Clause of the Constitution. This clause gives Congress exclusive authority to regulate interstate and international commerce. Since the 19th century, courts have also read this clause to prohibit “certain state actions that interfere with interstate commerce.”

Here, the court said Florida’s tax interfered with interstate commerce because there was no “substantial nexus” to commercial activity within the state. In other words, aside from the fact American Business incorporated in Florida and operated a website from the state, there was nothing to connect the out-of-state flower deliveries with the state. American Business had no Florida inventory and shipped nothing itself. The orders were carried out by companies with no connection to Florida whatsoever. Accordingly, without more of a “substantial nexus,” Florida could not collect sales taxes on these “exclusively interstate” transactions.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Internet sales tax to be discussed in committee

Internet sales tax

Internet sales tax

The Marketplace Fairness Act (MFA) will inch ever so slightly closer to debate in the House when a special committee holds its upcoming hearing on Internet sales tax issues.

Representative Jason Chaffetz (R-Utah)

Representative Jason Chaffetz (R-Utah)

“Exploring Alternative Solutions on the Internet Sales Tax Issue” is scheduled for the House Judiciary Committee at 10:30 a.m. on March 4, 2014. Jason Chaffetz, a republican representative of Utah, will explore the concepts laid out by House Judiciary Committee Chairman Bob Goodlatte (R-Va.) last September. Chaffetz’s goal for this hearing is to examine Goodlatte’s guidelines and look at ways to refine the MFA legislation’s wording (H.R. 684 and S. 743) to address opponents’ concerns and not to make any changes to the current bill at this time.

Goodlatte outlined seven basic principles that need to be attended to before interstate sales tax becomes practical:

1)      Online retailers should not face new or discriminatory taxes that brick and mortar retailers or not faced with.

2)      The burden of sales tax compliance should be equal – not easier nor more difficult – for online retailers versus brick and mortar retailers.

3)      Out of state retailers should have equal access to protest unfair or discriminatory regulations.

4)      State governments should simplify tax laws so as not to shift an onerous burden onto businesses and make compliance inexpensive and reliable, even for small businesses.

5)      States should keep sales taxes low and compete with one another so as not to disadvantage American retailers to foreign competition.

6)      States should be sovereign and not be subject to federal compliance burdens.

7)      Customer data must be private and protected.

Various factions, both pro and con on the MFA, have responded positively to Goodlatte’s principles.

The MFA seems unlikely to be brought before the House prior to this year’s midterm elections but may gain traction in the next congress if arguments against the legislation can be addressed.

Read more at Bloomberg BNA

Amazon backs down in Texas sales tax fight

sales tax fight

sales tax fight

Amazon.com to collect sales tax in Texas

Amazon.com settles lawsuit over collecting sales tax in Texas

Amazon.com lost the sales tax fight with Texas and has agreed to a settlement which, among other concessions, says they will begin collecting sales tax on all purchases made by Texas residents starting July 1, 2012.

Amazon has agreed to drop the threat to relocate their Texas-based warehouse and to create 2,500 new jobs in the state. They will also make $200 million in capital investment in Texas over a four-year period.

Texas has agreed to “forgive” the $269 million in unpaid taxes the state said Amazon owed.

Paul Misener, Amazon’s vice president of Global Public Policy said “We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states’ rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due.”

Amazon’s new-found support for Sen. Dick Durbin’s (D-Ill.)  Main Street Fairness Act, makes greater sense as more and more states continue to bring multi-million dollar lawsuits against the company.

Currently, Amazon only collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington. Starting in July, Texas will be added to that list. Amazon also agreed to start collecting sales tax on online items in California starting next year, and in Arizona in 2014.