CCH Says Internet Taxes Becoming the Trend With or Without Legislative Push
- A small seller exception for remote sellers with gross annual receipts nationwide not exceeding $1 million, or in the state not exceeding $100,000;
- A single tax return for use by remote sellers and a single authority in the state with which the return must be filed; and
- An identical tax base and exemptions throughout the state for remote sellers.
Additionally, under MEA, states would be required to adopt a rate structure for remote sellers, with certain restrictions. The three acceptable rate structures would be:
- A single statewide blended rate that includes both the state rate and local rates;
- A maximum state rate, exclusive of tax imposed by local jurisdictions; and
- A destination rate, which would be the sum of the state rate and the local rate into which the sale is made.
According to Schibley, it’s doubtful the MEA legislation will gain much traction in the current Congressional climate.
“It will be assigned to a committee and could have a hearing before next year, but chances of passage are remote,” Schibley said, adding that among the long-shot possibilities is that it is taken up by the deficit-reduction super committee.
States’ Remote Seller Collection Bills Gain Momentum
While Federal legislation appears stalled, states continue to move forward with their own approaches to require online retailers to collect sales tax. Collectively, these remote seller collection bills require online retailers that have some type of connection with the state to collect state sales tax.
According to Schibley, remote seller collection bills have different state-specific nuances but tend to fall into four general categories:
Click-through-nexus Legislation
Click-through-nexus rules generally require an online retailer to collect sales tax if it solicits sales with links on an in-state business’ website and pays those website operators a commission. The argument is that this arrangement is akin to having an in-state sales force. Eight states have passed click-through-nexus legislation:
- Arkansas;
- California;
- Connecticut;
- Illinois;
- New York;
- North Carolina;
- Rhode Island; and
- Vermont.
Additionally, click-through-nexus bills have been introduced in Massachusetts, Michigan, Pennsylvania and Tennessee. The Michigan legislation also includes provisions for affiliate nexus, and the Pennsylvania legislation includes provisions for affiliate nexus and reporting and notice rules, both detailed below.
“Amazon has made headlines by canceling all its relationships with partner sites in states that had enacted click-through legislation, with the exception of New York,” Schibley said. He added that last month California lawmakers gave online retailers a one-year reprieve from having to collect sales tax from in-state customers and Amazon agreed to begin collecting by January 2013.
“Amazon is one of the largest online retailers, so people are watching the various disputes in which it is involved and how it is responding,” Schibley said.
Affiliate-nexus Legislation
Affiliate-nexus rules generally apply if the online retailer has an affiliation with a company doing business in the state; for example, a sister company or subsidiary, selling goods under a similar business name, or sharing in-state employees or facilities. Six states have recently enacted affiliate-nexus laws:
- Arkansas;
- California;
- Colorado;
- Illinois;
- South Dakota; and
- Texas.
Reporting Requirement Legislation
These rules so far have only been enacted in Colorado and are included in the Pennsylvania legislation. They require a retailer selling into the state but not collecting sales tax to send the state an annual statement of everyone in the state it shipped to and the value of those purchases. The state can then pursue the individual in order to collect the use tax. According to Schibley, the Direct Marketing Association currently is challenging the Colorado law in Federal court and the court has blocked enforcement while the two parties lay out their case.
