Remote Sellers – Did you enjoy your summer?

While you may have been enjoying the dog days of summer, you may not have noticed that some states implemented new Remote Seller rules.

 

Effective July 1st, rules were established for:

Arkansas

New Mexico

Pennsylvania

Rhode Island

Virginia

Connecticut revised their thresholds effective July 1st.

 

Effective August 1st, Ohio starts with their rules.

 

Also, coming this Fall, effective October 1st, watch for these new states to come onboard.

Arizona

Kansas

Texas

 

For a review of all the states with Remote Seller Rules, follow our handy chart below.  This is not legal advice, but guidance for your review.  The chart includes links to the individual states’ Web site pages and FAQ pages, where available.

 

 STATE$ Gross Receipts
Limit
# Retail Sales
Transactions
EFFECTIVE DATEDOR LinksFAQs
Alabama>$250,000October 1, 2018AL InfoFAQs for AL
Arkansas>$100,000200July 1, 2019AR InfoFAQs for AR
Arizona>$200,000 in 2019
>$150,000 in 2020
>$100,000 in 2021 +
October 1, 2019AZ Info
California>$500,000April 1, 2019CA InfoFAQ for CA
Colorado>$100,000December 1, 2018CO Info
Connecticut$100,000"and" 200December 1, 2018
Revised July 1, 2019
CT Info
Delaware
District of Columia>$100,000"or" >200January 1, 2019DC Info
Florida
Georgia>$250,000 in 2019
>$100,000 in 2020
"or" >200January 1, 2019GA InfoFAQs for GA
Hawaii$100,000 +"or" 200July 1, 2018HI Info
Illinois$100,000 +"or" 200October 1, 2018IL InfoFAQ for IL
Indiana>$100,000"or" 200October 1, 2018IN InfoFAQ for IN
Iowa$100,000January 1, 2019IA Info
Kansas0October 1, 2019KS Info
Kentucky$100,000 +"or" 200October 1, 2018FAQs for KY
Louisiana>$100,000"or" 200January 1, 2019LA Info
Maine>$100,000"or" 200July 1, 2018ME Info
Maryland>$100,000"or" 200October 1, 2018MD Info
Massachusetts>$500,000"and" 100October 1, 2017MA InfoFAQs for MA
Michigan>$100,000"or" 200October 1, 2018MI InfoFAQs for MI
Minnesota>$100,000
in 10+ transactions
"or" 100October 1, 2018MN InfoFAQs for MN
Mississippi>$250,000September 1, 2018MS Info
Nebraska>$100,000"or" 200January 1, 2019FAQs for NE
New Jersey>$100,000"and" >200October 1, 2018NJ Info
New Mexico> $100,000July 1, 2019
New York>$300,000"and" >100January 1, 2019NY InfoFAQs for NY
North Carolina>$100,000"or" 200November 1, 2018NC InfoFAQs for NC
North Dakota$100,000"or" 200October 1, 2018ND InfoFAQs for ND
Ohio>$100,000"or" 200August 1, 2019OH InfoFAQs for OH
Oklahoma>$10,000
>$100,000 in 2019
July 1, 2018
November 1, 2019
OK Info
Pennsylvania>$100,000July 1, 2019PA Info
Rhode Island$100,000"or" 200July 1, 2019RI Info
South Carolina>$100,000November 1, 2018SC InfoFAQs for SC
South Dakota>$100,000"or" 200November 1, 2018 SD Info
Texas$500,000October 1, 2019TX Info
Utah>$100,000"or" >200January 1, 2019UT Info
Vermont$100,000"or" 200July 1, 2018VT InfoFAQs for VT
Virgina>$100,000"or" 200July 1, 2019VA Info
Washington>$100,000"and" 200October 1, 2018WA Info
West Virginia>$100,000"or" 200January 1, 2019WV Info
Wisconsin>$100,000"or" 200October 1, 2018WI Info
Wyoming>$100,000"or" 200February 1, 2019WY Info

 

 


Need help with filing sales and use taxes in all your new state obligations?

We recommend contacting Brian Greet at TaxConnex.  Brian and his team have been assisting our clients with sales tax filing and consulting long before “remote sellers” became a common phrase in sales tax business.

Visit www.taxconnex.com or call 877-893-5304 for an initial, free consultation.


 

 

 

Nexus in Today’s Technology Marketplace

Nexus

Nexus

nexus-workplace
Since 1992 and the Quill Corp. v. North Dakota [504 U.S. 298 (1992)] (“Quill”) ruling establishing physical presence in a state before a seller is required to collect sales or use tax, technology has redefined the marketplace. Remote sellers have enjoyed not charging tax on sales in states where they did not have a brick and mortar physical presence. The states realized the large amounts of tax dollars not collected from remote sales and have been trying to figure out how to impose taxes on these out-of-state sales. 
Amazon Laws
The Streamlined Sales Tax Governing Board and Agreement were formed in 2000 with a goal of overturning the Quill ruling and require remote sellers to charge tax. The purpose of the Agreement was the reduction of compliance burdens, especially to small remote businesses. Then a number of states began legislation known as “Amazon Laws”;  the multiple introductions of the Marketplace Fairness Act in the Senate in 2011, 2013 and 2015, and many more online sales simplification acts have made their way through local, state and federal legislation.  Before looking at current legislation and status of remote sales tax compliance, let’s take a look at the expanded definitions of what determines nexus.
Nexus

Merriam-Webster Dictionary defines nexus as a connection.

Substantial Nexus
Substantial nexus is established through the Commerce Clause requiring sufficient presence in a state prior to requiring collection of sales and use taxes. Substantial nexus was determined by physical presence (including employees) in the jurisdiction to require registration and collection of sales and use taxes. Many court cases have refined the definition of substantial nexus, the most notable case being Quill ruling. After time and significant technological advances in how business is transacted, substantial nexus and the Quill rulings have been under scrutiny and additional confusion.
Affiliate Nexus
Affiliate nexus is an evolution of the business world and the increase of online retailing. A business with an affiliate in a state, in which the business does not have any brick and mortar presence, becomes subject to sales and use tax registration and collection. Affiliation with Company A (in State C) to sell services or products with Affiliate B (in State D) who has a website in which they sell Company A products for a commission creates affiliate nexus for Company A and they are subject to sales and use tax registration and collection.
Acting as a representative for Company A creates affiliate nexus for Affiliate B in many states. The most notable case for affiliate nexus is the Borders Online v. State Bd. Of Equalization, (Cal. App. 1st Dist. 2005) which determined the acceptance of returns of purchases on-line in the brick and mortar stores created representation and therefore affiliation.
Click-Through Nexus
Click-through nexus is an extension of affiliate nexus for the growth of Internet marketing. Technology and Internet retailers are continuously improving and growing methods to increase their customer bases. Many states have implemented or are looking to implement Click-Though Nexus to keep up with the new technology. These laws presume an out-of-state retailer to have nexus in their states when a person in their state is referred to an out-of-state vendor’s website. If the referral results in a sale, nexus is created and the in-state retailer is required to collect sales & report use tax. These referrals are inclusive of the advertisement links one sees on Facebook pages.  Click ecommerceon one, purchase something, and a click-though nexus is created for the in-state retailer.
Economic Nexus
Economic nexus is the newest fight for states to impose sales and use tax on retailers not falling under other nexus definitions. Many on-line retailers (Amazon) have terminated affiliate agreements to not create affiliate nexus and subject to sales and use tax regulations. Enter economic nexus.
Economic nexus creates economic thresholds to create nexus and subject to sales and use tax regulations for nonresident retailers with no physical presence. States adopting economic nexus are creating various formulas to get a bright-line test for revenues received from the state during the tax year. Considerations for bright-line tests include analysis of the frequency, quantity, and the systematic nature of economic contacts with the state.
Notice and Reporting Requirements
A different approach to states collecting online retail use tax from in-state customers is Colorado’s Notice and Reporting Requirements. The law requires out-of-state retailers, not collecting sales tax from Colorado sales, to report transactions to state tax authorities and notify customers of the self-reporting and payment of the use tax obligation. Since there is no collection or remittance of sales or use tax required, the U.S. District Court of Appeals has held there is no violation to the Commerce Clause or the Quill ruling.
Sourcing Rules
The question of where the tax base is and who is owed tax arises through the nexus and simplification process. 
  • Destination-Based Sourcing – The tax base and rate is at the location of the consumer. 
  • Origin-Based Sourcing – The tax base and rate is at the location of the retailer. 
  • Hybrid Sourcing – The tax base and rate is at the location of the retailer, if the state is party to a distribution agreement.

The remote sale and collection of tax is a fluid world right now. Constant changes in state and federal legislation, technology and business models keep retailers and buyers on their toes. Technology moves much faster than legislation, so the legislative process may always be playing a game of “catch-up”.

Laura Hoffman

Laura Hoffman

 

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years.  

Rules For Taxing the Cloud Are Cloudy

Taxing Cloud

Taxing Cloud

cloudCloud computing is causing confusion to tax departments, small and large. Are cloud transactions subject to sales and use tax? Subject to income tax? How do you describe the cloud and what does it offer to companies?

What is the cloud really?

Before you can begin to answer any questions about taxing cloud transactions, you need to understand: what is the cloud?

Cloud computing essentially relies on shared computing resources versus local servers or personal devices for operating applications. “Cloud” is a metaphor for “the Internet” implying Internet-based computing. However, the cloud can provide much more than just application services. It offers data processing, information services, hardware lease/rental, telecommunication services, and software applications and systems, to name a few. Businesses are able to use cloud services to maintain a sophisticated infrastructure without the financial and employee resources local infrastructures require.

After understanding the principles of cloud transactions and characteristics, then you need to find how those offerings fit into state tax categories. Very few states have actually addressed cloud transaction tax categories and how they should be taxed. The IRS is being asked how cloud transactions should be characterized – provisions of services, rental income, royalty income, or what?

What are the characteristics of cloud transactions?

It is already common knowledge that finding and categorizing state tax regulations into neat, easily understood types is next to impossible. Each state maintains their own classifications, tangible/non-tangible definitions, taxable services and much, much more. The first step in determining a reasonable basis for cloud computing taxation begins with some basic state taxation questions:

What are the characteristics being provided by cloud computing for tax categorization?

  1. What are the sourcing issues? Destination-based (end user) or Origin-based (location of cloud data center)?
  2. What are the nexus considerations?
  3. Are services provided only; or is there a right to use tangible personal property?
  4. If tangible personal property involved, does the state tax all software or only canned software?
  5. Is there a right to access technology or just the use of technology?
  6. Is Internet access included?

Determining the use of your cloud computing will aid in answering many of these questions. If you are using only the cloud as an application server, then most likely the characteristics resemble those of software and software services. With that said, you still need to determine what your state regulations are for these characterizations. Some states tax canned software, but not custom software. Defining custom software is essential since there are different definitions of what is custom software. There is also much differentiation between states on software licensing and services; it would be recommended to check each state taxing authority to begin your research.

Some states determine that where the cloud computing center is located is the tax situs; others take the end-user location as the taxing situs. The latter could cause issues and complications for multi-state companies using one cloud computing center for multiple state locations. This may require allocation of usage to each state and company location.

Do Some Due Diligence

With so much at stake and states taking more interest in taxing cloud computing offerings, companies (large and small) would benefit from performing due diligence in what is or is not subject to taxation. Check the Streamline Sales Tax Governing Board, Inc. website for more information; however, any mainstream progress is slow to getting a common characterization and definition of cloud taxability. At a minimum, check the State Tax Matrices for your applicable states and determine if cloud computing is addressed in the matrix.

The take away is to ensure the tax department knows about any cloud computing usage in companies; don’t leave the research to the IT department. No offense to IT departments, but they are not the tax experts. Too many times tax departments are the last to know and then the tax consequences are already set in motion. Better to stay ahead and prepared and not have to fix the issue after-the-fact.

What’s Next?

The next major concern is the application of nexus rules and how they are affecting remote retailers and service providers. Does cloud computing create nexus? My next blog will cover some of the various nexus definitions and how they affect how business is run today.

Laura Hoffman

Laura Hoffman

 

Laura Hoffman is an Indirect Tax Specialist living in Las Vegas, Nevada. Laura retired from a multi-state natural gas distribution company after specializing in sales & use taxes, franchise fees, business licensing, property taxes, excise and utility taxes for over 15 years. 

In lieu of federal progress, Colorado passes its own version of the Marketplace Fairness Act

federal progress

Landmark law requires retailers to prove they DO NOT have nexus

On June 9, 2014, Colorado’s Gov. John Hickenlooper signed the Marketplace Fairness and Small Business Protection Act into law

Colorado’s landmark legislation requires retailers to prove their sales DO NOT create nexus for them creating new questions about what that means for online retailers doing business in the state and how they are to handle Colorado’s myriad home rule jurisdictions.

E-Commerce has fundamentally changed the way that consumers shop, with sales growing over 12% in 2013 according to the U.S. Department of Commerce. Presently e-commerce accounts for $322 billion in annual sales, representing significant growth each year from 2009 when e-commerce totaled $209 billion.

While this trend has been promising for online retailers, it’s proven to be a huge headache for state legislators who are tasked with recuperating what they see as lost sales tax from online sales. On June 9, 2014, Colorado’s Gov. John Hickenlooper signed the Marketplace Fairness and Small Business Protection Act into law, representing his state’s attempt to modernize the laws of e-Commerce sales tax to reflect current realities.

The new law expands the definition for what constitutes nexus for retailers based outside of Colorado, so that the Department of Revenue can now collect taxes from businesses that don’t have a significant physical presence in the state. Its supporters in the state legislature claim that House Bill 1269 will infuse the treasury with a stimulus of more than $67 million in sales tax during the upcoming year.

While the bill spares small businesses that have less than $50,000 in annual sales, it will have a far reaching effect on any larger retailer making sales within Colorado. This is due to a clause in the bill that creates a presumption of nexus for online retailers. The tables have been flipped, so that the burden of proof is now on the online retailers to show that they do not have nexus in the state of Colorado. If a retailer is unable to prove their lack of nexus, they will be obligated to pay state taxes.

Other states including New York, Missouri, and Maine have passed similar legislation that have been dubbed “Amazon laws” after the dominant leader of U.S. online retails sales. However, House Bill 1269 will not affect Amazon itself, since Amazon took preemptive steps and cut off its relationships with its affiliates based in Colorado. In fact, Amazon has spent millions of dollars on Capitol Hill in recent years to lobby for a nationwide internet sales tax that would grant it a competitive edge as it continues to expand.

Colorado’s bill is modeled after the similarly named federal Marketplace Fairness Act (MFA), which was passed by the Senate in May of 2013 and would grant states the authority to collect taxes from online purchases.

With little likelihood of forward progress on the MFA in the House this term, the state of Colorado has decided to try out a version of the MFA on its own. Its supporters are optimistic that its benefits will be plainly observable in the coming year, and if so, we can expect additional states to pass their own versions in the foreseeable future.

Supreme Court supports click through nexus rule

click through nexus rule

click through nexus rule

U.S. Supreme CourtThe Supreme Court has recently bolstered state efforts requiring remote vendors to collect sales tax. In a recent ruling, the court declined to review a case challenging New York State’s click through nexus rule. The New York law finds that a remote or Internet seller establishes physical presence when in-state retailers refer clients to the site through advertisements. This technique is called “click-through” or attributional nexus. Nexus is established because the in-state vendor’s presence is attributed to the remote vendor. For example, if a New York based company advertises a product and allows completion of the purchase via a link with Amazon, Amazon must collect sales tax on the purchase.

The denial of certiorari is at odds with previous opinions from the Supreme Court. Historically, the court has found that states lack the power to require vendors to collect tax unless the vendor has a “physical presence” in the state. Moreover, the court has narrowly interpreted the “physical presence” requirement, usually requiring a building or in-state personnel. The court’s interpretation was strict enough that Illinois the Supreme Court found that “click-through” nexus was unconstitutional. The Illinois court’s ruling focused on the lack of physical connection through a web link.

As a result, the court’s refusal to overturn New York’s law creates the opportunity for states to expand their collection efforts over at least some remote vendors. The New York win aids states in collecting tax from remote Internet vendors at a time when Internet sales are at an all time high. Without comprehensive legislation detailing the limits of state taxing powers, vendors may be subject to unpredicted tax collection requirements. Retailers may face increased tax risks as states increase enforcement efforts related to attributional nexus.

Chris Saddock

Chris Saddock

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