Federal Internet Sales Tax - New Webpage on Marketplace Fairness Act Blog Articles and More

I’ve been following and reporting on Federal Internet Sales Tax developments for quite some time now - actually, almost three years!  I wrote my first post on a Federal proposal that was introduced back in July of 2010!! That post, which I authored for a business website, AllBusiness.com, and also published here on The State and Local Tax “Buzz”, covered H. 5560, The Main Street Fairness Act, introduced by the 111^th Congress (that was two Congresses ago, folks!) You can read that very first post here -> “The Main Street Fairness Act: Explaining Internet Sales Taxes”.

But my coverage of Internet Sales Tax developments really took off when I was asked to become a regular contributor to a newly launched multi-contributor blog for SalesTaxSupport.com, an on-line sales-use tax resource website.  I announced that I’d be joining SalesTaxSupport’s blogging crew here at The State and Local Tax “Buzz” in a June 24, 2011 post, “E-Commerce/Internet Sales Tax, An Important Topic for Today's Business”.  

 

This is a topic that I'm genuinely passionate about!  And so, in the past three years I’ve written blog posts on every single Federal Internet Tax proposal introduced!  And during the last Congressional session (the 112^th Congress, 2011-2012), when three separate federal internet tax proposals were introduced, I not only covered the specifics of each proposal, I wrote posts comparing them to each other, posts on Congressional hearings where the proposals were debated, posts on internet retailer’s concerns on how the proposals would impact them, posts on last minute efforts to see a federal proposal passed, and a plain English whitepaper for small-medium e-Commerce businesses. And when all three of the proposals introduced by the 112^th Congress failed to pass, I wrote a post on the Dysfunctional 112^th Congress and another on my predictions for 2013. (My main prediction? That new legislation would be introduced early in 2013 - which is exactly what happened.)

 

Now, if you’ve read my Federal Internet Sales Tax posts, you’ll understand why I often refer to them as blog articles. You see, I’m a woman of many words – and I hate glossing over provisions and issues that I think are important. So my goal is always to provide in-depth information – and I do this because I genuinely love to write and share what I know about the topic.

So I decided that I'd create a web-page here at The State and Local Tax "Buzz" that would list and link to my many written contributions on Federal Internet Sales Tax developments, as much for myself (so that I have a quick way to retrieve and link to my blog articles), but also for the benefit of my readers who are as passionate about this topic as I am. You can see my “Federal Internet Sales Tax Posts” by clicking the web-page title I just noted, the web-page tab above (the tab right after Publication and Presentations), or here. Once you’re on that page, you can link to any of the blog articles I’ve written by clicking on the post title. (The article will open as a new page on the site where the article is published.)  On that page, I’ve also included some select quotes and comments I provided to other reporters for their federal internet sales tax articles.

And if you're looking for some recent blog contributions on last week’s passage by the Senate of S. 743, the Marketplace Fairness Act of 2013, well I've got those also! In the past week, I’ve written not just one, but two blog articles on this development.    

• The first I wrote on May 10^th for SalesTaxSupport.com’s Sales-Use Tax Issues, Insights and Ideas blog where I serve as the Internet Sales Tax contributor. The post, “Marketplace Fairness Act: The Issues No One is Talking About” provides an update on the May 6^th Senate vote, but more importantly highlights several issues that aren’t receiving the attention they should.  

• The second post I wrote on May 12^th for AllBusiness.com, a small business website where I blog on a variety of tax and business issues.  That post, “The Marketplace Fairness Act: What All SMBs (Not Just Internet Retailers) Need to Know”, is a primer on the proposal – what it will require of states, the small seller exemption, etc. – written for the small-medium business audience.  As the title implies, I also highlight that the proposal will impact more than just internet retailers. 

I invite you to read both of my new contributions which you can access by clicking the post title above or at my new Federal Internet Sales Tax Posts web page.

And one last point. Are you an iShade member?  If so, then you’re probably already aware that tomorrow, March 15^th, I’ll be presenting on an iShade “Ask the Expert” session - “The Marketplace Fairness Act of 2013 – Get Ready for Internet Sales Taxes” (Here’s iShade’s Press Release announcing the session). The ATE will begin with a one-hour Webinar where I’ll discuss sales tax nexus, why internet retailers aren’t currently required to collect sales tax in many states, State Amazon Laws, but most importantly the Marketplace Fairness Act of 2013 – what it will require states to do, its journey in Congress thus far, how it defines an exempt small seller, how it will impact more than just internet retailers and what CPAs and advisors need to know. Following the one hour Webinar, I’ll transition to a live 30 minute Q&A session where iShade members can pose their follow-up questions. You can register for the iShade session here.

With last week's passage of S. 743 by the Senate, this is a hotter topic than ever! You can bet I’ll continue to report on new developments.  And as I author new blog posts or articles, or offer new quotes, I’ll update my Federal Internet Sales Tax Posts web page.  So stick with me – there’s much more to come!

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Missed my last post? Catch it here: "Massachusetts Issues TIR 13-7: Provides Three Month Extension to Individuals and Businesses Impacted by Boston Marathon Violence"

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Massachusetts Issues TIR 13-7: Provides Three Month Extension to Individuals and Businesses Impacted by Boston Marathon Violence

To say that the events that took place in Boston and the surrounding areas this past week were surreal is an understatement!  The Boston Marathon bombings have been described as the most violent act of terrorism on U.S. soil since September 11^th.  The subsequent manhunt for those responsible, the lock-down imposed on residents of Boston, Cambridge, Watertown and surrounding areas, the emptiness of the streets of downtown Boston and these same communities as the FBI, local police, swat teams and militia conducting a house-by-house search - well again - all so surreal!

I find myself angry and sad but at the same proud of my fellow Massachusetts residents who have come together and shown an incredible amount of resilience. My thoughts and prayers truly are with those of you who have been impacted!

And so, in this post I’ll discuss Massachusetts' recently issued administrative guidance announcing and explaining an additional extension of time to file/pay to individual and business taxpayers impacted by the Boston Marathon violence, but also offer links to good sources of information where details on how to help can be found.

Massachusetts Issues TIR 13-7: Extension of Time for Certain Tax Filings and Payments for Taxpayers Affected by the Boston Marathon Explosions

On April 18^th, the Massachusetts Department of Revenue (“the Department”) Issued Technical Information Release 13-7: Extension of Time for Certain Tax Filings and Payments for Taxpayers Affected by the Boston Marathon Explosions (“TIR 13-7”) in which the Department provided guidance relating to an extension of time to file/pay for taxpayers impacted by the Boston Marathon violence.

Recognizing that most taxpayers use information from their federal tax return to complete their Massachusetts return, the Department has followed the IRS’ lead in extending the date for the filing of many Massachusetts tax returns, and the associated payment of such returns, until July 15, 2013.  (Note, The IRS’ three-month relief is detailed IRS Information Release, IR-2013-43, issued April 16, 2013.)

Tax Returns to Which the Extended Filing and Payment Deadline Applies

The July 15^th extended deadline applies to several categories of individual and business tax returns and to the payments of affected taxpayers that would have been due on Massachusetts’ normal due date of April 16^th. (Note, April 15th fell on Patriots Day, a Massachusetts state holiday, which meant that Massachusetts taxpayers had an extra day to file their Massachusetts returns and payments.  Incidentally, the Boston Marathon is traditionally held on Patriots Day – thus, this adds even greater significant to the violence that occurred that day.)

The Massachusetts tax filings and payments to which the three month extension applies include:

• Individual income tax returns
• Partnership returns
• Estate and trust income tax returns
• Estate tax returns
• Estimated personal income tax payments (e.g., 2013 first quarter estimates) 

Corporate and business tax returns of affected taxpayers that were originally due on April 16, 2013 (essentially those with a fiscal year ending January 31, 2013), are also granted the three month extension.  This would include the following returns:

• Corporate excise (including S corporation returns)
• Unrelated business income tax returns (of a business corporation or non-profit corporation)

TIR 13-7, however, specifically excludes "trustee tax" returns and payments from this extension including sales or use tax returns and payments, meals tax returns and payments, room occupancy tax returns and payments, and employer and other withholding tax returns and payments.  In addition, individual taxpayers who had filed their Massachusetts return prior to April 16th, but who had not yet remitted the tax payment due with their return, are not entitled to the additional three month extension.

 

Despite the Departments’ decision to exclude “trustee tax” returns and payments from this relief, the TIR emphasizes that the Department expects that late-file and late-pay penalties will generally be waived with respect to such trustee tax returns and payments where the taxpayer has reasonable cause for the late filing and payment. (The guidelines for what qualifies as reasonable cause can be found in the Massachusetts Administrative Procedure "AP" 633 - Guidelines for the Waiver and Abatement of Penalties.)

Taxpayers to Whom the Relief is Extended and Procedure to Claim the Extension

Taxpayers to whom this relieve is extended include all individual taxpayers living in Suffolk County and all other Massachusetts personal income tax filers and business and corporate taxpayers whose income or corporate excise filings and payments were adversely impacted by the April 15^th explosions, including taxpayers whose tax return preparer or necessary records were directly impacted by the explosions. 

Affected taxpayers that file their returns, extensions and payments electronically will automatically be granted the three month extension.  Taxpayers who file paper forms and returns should include the following notation “2013 Boston Marathon” in red ink at the top of their filings.    

Sylvia’s Summation

The Massachusetts Department of Revenue has issued a Technical Information Release detailing the extension of time until July 15, 2013 for the filing of most categories of tax returns and forms, and the associated tax payments, that would have been due on April 16, 2013. 

Because the Department’s relief extends to business taxpayers, as well as to individual taxpayers that are residents of any Massachusetts county (provided the taxpayer, the taxpayer’s return preparer or the taxpayer’s records have been impacted by the explosions), the Department’s relief is more comprehensive and generous than the IRS’ which limited it’s extension to individual tax returns and Suffolk county residents.

   

The extended time provided to affected taxpayers means that qualifying returns, forms and payments made by July 15, 2013 will not be subject to late filing or late payment penalties.  However, all payments will be subject to statutory interest, which will accrue from the original April 16^th deadline until the payment date.  Additionally, taxpayers should note that failing to file their qualifying returns, forms and/or payments by the July 15^th  deadline will subject them to penalties dating back to the original tax return or tax payment due date.

Finally, in light of the unspeakable tragedy that occurred in Boston just one week ago, there have been many organizations, corporations and individuals that have come forward to help, including some establishing funds for the victims and their families.  If you'd like read about some of these efforts, and possibly lend some support, the Boston Globe has a listing of ways to help in this April 18th, Boston.com report: “Boston Marathon Bombings: How to Help.”  The Huffington Post has also updated its report “Boston Marathon Help: Funds Set Up For Martin Richard, Lu Lingzi, Other Victims And Survivors”  which includes a similar listing of ways to help.

One last note – while events such as the marathon bombings can bring out the best in people who genuinely want to help, not everyone has the best of intentions.  Sadly within the last week, the IRS has reported the emergence of scams purporting to raise funds for the Marathon bombing victims (as well as for the victims of the West, Texas fertilizer explosion). Here are two great reports on this topic: “Don't become a charity scam victim in the wake of this week's terrible events in Boston and West, Texas”, Don’t Mess With Taxes blog, 4/19/13; “IRS Warns about Boston and Texas Charity Scams”, AccountingToday, 4/22/13)  

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Requirements Gathering: A Transaction Tax System Implementation’s Most Important Phase

The following is a guest post by Diane Yetter, founder of The Sales Tax Institute.  For more about Diane and The Sales Tax Institute, see the guest blogger box after the post.

The first phase of any transaction tax systems implementation should be the evaluation and gathering of all the business and tax requirements. A best practice is to complete this phase before a solution is selected, but this rarely occurs. Deciding on the optimal solution is dependent on these requirements. Choosing the solution before the requirements are known can lead to incurring more costs than necessary or making compromises. Therefore, you ideally want to do all requirements gathering first.

Of all the phases of a tax system implementation, requirements gathering is by far the most important.  The efforts of the entire team – tax and business stakeholders - are needed during this phase. If this phase is limited either by time, resources or participation by key stakeholders, underdeveloped or undiscovered requirements will create challenges throughout the remainder of the project.

Ideally, the requirements gathering phase should be led by someone knowledgeable in the following items:

1.  The potential tax systems being considered
2.  The financial system the tax engine will be connected to
3.  The business
4.  The tax issues facing the business and the industry

Using someone who is familiar with all of these components is a best practice as this individual will be able to identify the issues related to the requirements. This person will also be able to understand and propose solutions on how these requirements can be handled. 

The following are some (but not all) of the questions that will aid in evaluating the project plan and system functionality:

• Is the project part of an overall ERP replacement or upgrade or is it a stand-alone tax system project?
•  Is the project an upgrade of an existing tax engine, a replacement of an existing tax engine or a new solution?
• Are there limitations in the current systems that need to be enhanced?

The following are some (but not all) of the questions that will help shape the business, tax and systems requirements.

• Which jurisdiction are included in the project?
• Will there be changes in taxation that may affect customers?
• Can tax groups be established for products or customers?

Requirements gathering is just one topic that will be covered in the Sales Tax Institute’s upcoming Best Practices in Systems Implementation webinar on February 21.  Join Diane Yetter of the Sales Tax Institute and Kai Ranabargar of Tax Technology Group to hear how understanding the best practices in systems implementations helps companies to reduce errors, increase productivity, and potentially avoid audit fines, penalties and the labor costs to fix mistakes found in an audit.  For additional details and registration, click here. 

The above was a guest post by Diane Yetter.  Diane is President and Founder of YETTER, a sales tax consulting firm, and a strategist, advisor, and renowned speaker in the field of sales and use tax. Diane is also Executive Director of Sales Tax Institute offering sales and use tax classes and training.

Sales Tax on Cloud Computing, SaaS and Related Business Solutions: Massachusetts Issues Draft Directive, Provides Criteria for Establishing Taxability

“Cloud computing”, “Software-as-a-Service”, “business solutions” which include an incidental transfer of software – subject to Massachusetts sales tax, or not? A recently issued Massachusetts Department of Revenue Working Draft Directive establishes criteria for determining whether transactions involving software and related solutions are subject to the Massachusetts sales tax.
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Massachusetts Issues Working Draft Directive 13-XX, Criteria for Determining Whether a Transaction is a Taxable Sale of Pre-written Software or a Non-taxable Service

Within the last two years, the Massachusetts Department of Revenue (“the Department”) has issued numerous private letter rulings addressing the taxability of Software-as-a-Service, cloud computing and other business solution offerings which have involved a software component that in some instances, has been bundled with other non-taxable services. (For more on these Private Letter Rulings, see below.)

In response to the large volume of related ruling requests, on February 7, 2013, the Department issued Working Draft Directive 13-XX, Criteria for Determining Whether a Transaction is a Taxable Sale of Pre-written Software or a Non-taxable Service. The Directive, which is intended to be a general guide for taxpayers, provides the criteria the Commissioner considers when determining whether a transaction is a taxable sale or other transfer of the right to use prewritten software or instead, involves a product that is a non-taxable personal or professional service. The Working Draft states that the list of factors provided in the Directive will be considered cumulatively and that no one factor is determinative of taxability.

Revisiting Massachusetts' Treatment of Prewritten Software Transfers, Computer Industry Services and Products Regulation, 830 CMR 64H.1.3

Before delving into the Working Draft's criteria for distinguishing between a taxable transfer of prewritten software, or a non-taxable personal or professional service, I thought it would be helpful to provide a brief overview of Massachusetts’ treatment of prewritten software in general.

In 2005, Massachusetts adopted legislation which expanded the definition of prewritten software subject to the Massachusetts sales and use. The statutory change, which was subsequently reflected in the Massachusetts Computer Industry Services and Products Regulation, 830 CMR 64H.1.3,  provides that transfers of prewritten software sold to a customer in Massachusetts or purchased for use in Massachusetts is deemed a transfer of tangible personal property subject to the sales or use tax regardless of the method of delivery. The regulation adds that transfers may be effected in any of the following ways: licenses and leases, transfers of rights to use software installed on a remote server, upgrades and license upgrades. Prior to the April 1, 2006 effective date of the statutory change, Massachusetts sales or use tax was imposed on sales of prewritten software delivered in tangible form such as a disk, but not on prewritten software delivered electronically or by "load and leave."  On February 10, 2006, prior to the effective date of the expanding legislation and the amendment to 830 CMR 64H.1.3, the Department issued Technical Information Release (TIR), 05-15, Transfers of Prewritten Computer Software, to clarify the Department’s position, provide additional guidance on the law change, and revoke prior administrative guidance that was inconsistent with the then new law. 

Factors the Department Will Consider for Distinguishing between a Taxable Transfer of Pre-Written Software or a Non-Taxable Service

To date, the Computer Industry Services and Products Regulation, 830 CMR 64H.1.3, and TIR 05-15 were the primary sources of guidance available to taxpayers to assist them in determining the taxability of their offerings. Recognizing that additional guidance is needed, the Department has included the following criteria in its Working Draft for distinguishing between a taxable transfer of prewritten software or a non-taxable personal or professional service.

Working Draft Directive 13-XX indicates that the following are indicative of a transaction that should be characterized as a taxable transfer of prewritten software:

• A contract or written agreement that provides for a transfer by license, sale, subscription, lease, or other means, of prewritten software for consideration.
• A customer’s ability to access a seller’s prewritten software on its own or the seller’s or a third party server, and into which the customer can enter its own information, manipulate that information, and/or run reports.  On this point, the Working Draft parenthetically notes that a mere search queries in a seller’s database are not considered “entering information.”
• The seller provides the customer with the use of software that functions with little or no personal intervention by the seller or seller’s employees other than “help desk” assistance for customers having difficulty using the software.
• The seller refers to itself as an Application Service Provider (ASP) or its product as Software-as-a-Service (SaaS) or in a similar manner, although the seller’s characterization of a product is not ultimately determinative of its treatment for tax purposes.
• The seller provides access to software, including operating system software or application software, even if no software is transferred to the customer.  The Working Draft notes that this may be referred to as “cloud computing.”
• The software provides an organizational tool or function that is used by the seller’s customers, e.g., screen sharing.
• Prewritten software is bundled with a non-taxable service and is sold for a single price, but only where the software constitutes the predominant value of the sale. 
• The seller provides a “for charge” (not free) application that is downloaded to any device, including but not limited to a Smart-phone, PC or Tablet. 

Working Draft Directive 13-XX indicates that the following are indicative of a transaction that should be characterized as a non-taxable service:

• The seller’s employees provide data processing, create and run reports for customers and provide the resulting reports in any form, which are unique to the customer.
• The seller provides additional, different or restructured information to the customer (e.g., credit card or check verification services, ATM terminal driving services, database access).
• The customer does not interface with the prewritten software either on its own or on the seller’s or third-party servers or enters information that will be further manipulated by the software. On this point, the Working Draft parenthetically notes that search queries by the customer in the seller’s database are not considered entering the customer’s own information or interfacing with the software.
• A seller provides a personal or professional service (e.g., legal, accounting, data management, data storage).
• The transaction is for an optional maintenance contract that does not include software updates or upgrades.
• The seller is providing custom software.
• The seller is providing data storage and back-up.
• The customer runs its own software, which was not obtained from the seller, on the seller’s hardware in a “cloud computing” environment.
• The seller provides customized reports to the customer that are personal and individual to that specific customer and which are not shared with or sold to others.
• Substantial personal or professional services are performed by the seller’s employees and are bundled with the use of software and sold for a single price, and such services constitute the predominant value of the sale.  

Additionally, as previously noted, the Working Draft emphasizes that no one factor is determinative as to whether a transaction is one that should be characterized as a taxable transfer of pre-written software or a non-taxable personal or professional service. 

The Directive also states that in those instances where both services and the right to use software is integrated or bundled in one transaction, the Commissioner applies an “object of the transaction” test. Thus, where the object of the transaction is the purchase or use of the software, the transaction will be taxable. But where the object of the transaction is determined to be a non-taxable service, and any use or access to prewritten software is incidental, the transaction will be non-taxable.

  

Sylvia’s Summation

An issue that State revenue officials throughout the country are facing is the rapid evolution of technology and the need to address the taxability of new technologies by applying “slower to evolve” laws. The Department acknowledges this in its working draft when it states that, “software-related products and the terminology used to describe and market them are evolving at a rapid rate.”  The Working Draft also points out that as technology develops, purchasers increasingly have access to sophisticated software which is hosted on sellers’ or third party servers and marketed in various ways and with terminology that may be suggestive of the provision of services, e.g., as Software-as-a-Service, Cloud Computing, or “business solutions”.  The issue of taxability becomes even "cloudier" when access to software is bundled with the provision of services. The recent flurry of scenarios involving these new offerings on which the Department has been asked to rule (see Private Letter Ruling below), confirm that taxpayers are not always certain how existing law applies to their situation. The Department’s Working Draft (and the final Directive upon issuance) will provide additional guidance to taxpayers, in particular those whose products or business offerings includes a transfer or right to use software along with a provision of services and where the “object of the transaction” is not clear.

 

Finally, as these technologies, and the terms used to market them, continue to evolve, it is important when assessing the taxability of any "product" or "business offering" to understand what is actually being sold, regardless of the description or terminology used to market the offering. If this is an issue for your company, I would be happy to assist you in understanding the application of Massachusetts' rules to your situation.

Additionally, the Department is soliciting taxpayer and practitioner comments through Friday, Friday, February 22, 2013.  Interested taxpayers and/or their tax advisors should send their comments to the Massachusetts Rules and Regulations Bureau at RulesandRegs@dor.state.ma.us by this deadline.

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Massachusetts Private Letter Rulings Issued Within the Past 2 Years: As noted above, in the past two years, the Massachusetts Department of Revenue has issued several Private Letter Rulings applying the rules in the Computer Industry Services and Products Regulation to specific factual situations. Incidentally, the issues and activities described in these rulings are many of the same "criteria activities" listed in the Working Draft.

These rulings and their issue dates, are as follows: (Note, clicking on any ruling will take you the actual ruling on the DOR’s website. I have also summarized all of the 2012 rulings – if you interested in this summary, please post a comment, or contact me at sylviadion@verizon.net):

• LR 12-13: Massachusetts Sales/Use Tax on Internet-Based Marketing and Customer Communications Solutions, 11/9/12 
• LR 12-11: Data Back-up and Restoration, 9/25/12 
• LR 12-10: Screen-Sharing Software and the Massachusetts Sales/Use Tax, 9/25/12
• LR12-8: Cloud Computing,  7/16/12 
• LR 12-6: Sales/Use Tax on Publishing Software,  5/21/12 
• LR 12-5: Massachusetts Sales/Use Tax on Business Offerings to Physician Practice Customers, May 7, 2012 
• LR12-4: Massachusetts Sales/Use Tax on "Call Tracking Service", May 7, 2012
• LR 12-1: Teleconferencing Services, January 12, 2012 
• LR 11-4: MA Sales/Use Tax: Online Services for Prospective Employees, 4/12/11
• LR 11-2: MA Sales/Use Tax; Sales of On-line Services, 3/4/11
• LR 10-1: Litigation Support Services, 2/22/10

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Missed my last post? Catch it here: "Internet Sales Tax and the Dysfunctional 112th Congress"

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Internet Sales Tax Legislation and the Dysfunctional 112th Congress

At about noon this past Thursday, January 3^rd, the 112^th Congress formally ended.  That same afternoon, the 113^th Congress was sworn in. 

And as everyone knows “fiscal cliff” legislation was passed at the very last minute!

But what about the Federal Internet Sales Tax proposals that were talked about for so long?  Well, as some of you might know, none of those proposals passed!

That’s right – the Main Street Fairness Act (H.R. 2701/S. 1452), the Marketplace Equity Act (H.R. 3179) and the Marketplace Fairness Act (S. 1832) – are now all D-E-A-D, dead!

You see, when a new Congress takes over, the outstanding proposals don’t automatically carryover to the next Congress.  Although an identically drafted proposal can be re-introduced in the next session,  it’s still a considered a new proposal. (And yes, there are indications that Federal Internet Sales Tax legislation will be introduced in the new session, but more on that in a bit!)

Now, if you’re a frequent visitor to The State and Local Tax “Buzz” or if you’ve been following my contributions on Internet Sales Tax developments at the SalesTaxSupport.com blog, you already know that I covered these three proposals very closely.  I wrote posts covering the specifics of each of proposal, posts comparing the various proposals to each other, posts on the House and Senate Committee Hearings debating the merits of the proposals, posts on commonly asked questions, a whitepaper discussing the impact of the Federal legislation on small-medium e-Commerce businesses, and presented four Webinars where I covered the three proposals. 

And quite honestly, a few months ago – heck, even a few weeks ago – I wondered whether we might actually see Federal Internet Sales Tax legislation pass.

As a matter fact, in my December 20th SalesTaxSupport.com post, I discussed the last minute attempt by the three key sponsors of the Marketplace Fairness Act - Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN) -  to have an internet sales tax collection amendment included in the 2013 Fiscal Year National Defense Authorization Act (“NDAA”, S. 3254). (Note, the Senate overwhelmingly approved the NDAA on December 4^th, without an “internet sales tax” amendment.)  I also noted some last minute lobbying efforts by the National Conference of State Legislatures (“NCSL”), a strong proponent of S. 1832, the day after the Senate voted to pass the NDAA without the remote seller amendment; and a December 11^th letter sent by the National Governor’s Association to Senate Finance Committee Chair, Max Baucas (D-MT), and Ranking Member, Orin Hatch (R-UT), urging the passage of the Marketplace Fairness Act.  (See my 12/20/12 SalesTaxSupport post, “Internet Sales Tax Legislation: 2012 Review – and 3 Predictions for 2013”, for more.)

Earlier in the month I had also written a guest post for the BloombergBNA State Tax blog, where I indicated that just a few months ago some lobbyist and policy analysts were predicting that Federal remote seller legislation could advance in the lame duck session of Congress and noted that Steven Roll, BloombergBNA’s State Tax editor had observed an attitude of “fait accompli” (fact accomplished) at a fall Tax Administrators meeting. (See my 12/11/12 BloombergBNA State Tax blog guest post, “Expert Insight: Will Federal Remote Legislation Advance in the Final Weeks of the 112th Congressional Session?”)

So what happened?

We had three separate proposals to choose from,  the momentum was building, the lobbying for “e-fairness” was going full-steam, and even Amazon had come forward as a staunch supporter of the Marketplace Fairness Act.

In a nutshell, we had one of most dysfunctional Congresses we have ever had!

And this isn’t just my opinion.  On January 4^th, the Huffington Post published a very popular article “112th Congress Set To Become Most Unproductive Since 1940s”, which stated that President Obama had only signed 219 bills passed by the 112th Congress into law, and noted that, in comparison, the previous Congress (the 111^th Congress) had passed 383 bills, while the Congress before it (the 110^th Congress) had passed 460 bills.

The Huffington Post article also pointed out that the 112^th Congress was set to sign nearly 100 fewer bills into law than the previous holder of the “least productive Congress” title, which went to the 104^th Congress (1995-1996) – that session, 333 proposals become law.  The article also noted that even the 80^th Congress (1947-1948), which President Harry Truman infamously dubbed the "Do-Nothing Congress", signed significantly more proposals – those lawmakers passed 906 bills that became law.

And the Huffington Post wasn’t the only news site pointing out the 112^th Congress’ lack of productivity, the news stories (and names - some not so nice) were everywhere! (See "10 Insulting Labels for the Outgoing 112th Congress", The Week, 1/3/13; and "Good Bye and Good Riddance, 112th Congress", The Washington Post, 1/4/13)

Now the likelihood that a bill will actually become law is pretty slim to begin with.  According to OpenCongress.com, a non-profit, non-partisan public resource organization that tracks legislation, only about 4% of the thousands of pieces of legislation introduced by Congress each session become law.  As of a few months ago, GovTrack.us, another bill tracking transparency site reported that there had been 11,553 bills and resolutions introduced by the 112^th Congress, and at that point, the site was projecting that only about 5% would become law.  A recent OpenCongress blog post said it best, “The vast majority of bills are essentially dead upon arrival.”

But if indeed only 219 bills out of the 11,553 bills and resolutions introduced by the 112^th Congress became law, you’re talking about a dismal 1.896%.  That’s right, the 112th Congress can boast a less than 2% success rate in seeing its proposals become law!

Sylvia’s Summation

Dysfunctional – yes, perhaps the best word to describe the 112^th Congress. 

And so, I can’t help but wonder if Federal Internet Tax legislation would have passed had we had a much less dysfunctional Congress. Yes, I can’t help but wonder if we could have seen the overturn of Quill had a different Congress been in office.

One thing I’m sure of is that we’ll see Federal Internet Sales Tax legislation re-introduced by the 113^th Congress.  As a matter of fact, according to a recent news report, which quotes a spokesperson for Senator Dick Durbin (D-IL), one of the key sponsors of the Marketplace Fairness Act (S. 1832 – 112^th Congress), the Senator plans to re-introduce the measure during the 113^th session of Congress. (See “Online sales tax bill likely dead for 2012”, The Hill’s Technology blog, 12/25/12; and “A comprehensive online sales tax appears dead for now, but will resurface in the 2013 legislative cycle”, The Next Web, 12/27/12)**

And I anticipate we’ll see Federal legislation re-introduced fairly quickly. A December 12^th GovTrack.us blog post, and a supporting academic paper, suggest that proposals introduced in the first 90 days of a session have a much higher likelihood of become law.  So, if Senator Durbin or any other legislator wants to increase the chance of their proposal becoming law, they’ll want to introduce their proposal sooner rather than later.

Will any new proposal read identically to one of the prior proposals? Or will the drafters make changes to enhance their proposals' chances of becoming law. And will the 113th Congress fare any better than its predecessor Congress? Or will it be as polarized as the 112th Congress was.

If you want to keep up with these developments, stay with me here at The State and Local Tax “Buzz”, or follow my contributions to SalesTaxSupport’s Sales-Use Tax Issues, Insights and Ideas blog.

There's sure to be plenty more more drama!



**UPDATE:  Within two days of publishing this post, Senator Lamar Alexander, the Tennessee Republican who was as a key sponsor of the Marketplace Fairness Act (S. 1832-112th Congress) publicly announced that he plans to re-introduce Federal Internet Tax legislation. (See "Lamar Alexander plans legislation to allow states to require online retailers to collect sales tax", TimesFreePress.com, 1/9/13)

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Upcoming Changes in the Canadian Sales Tax Regime: What Sales Tax Professionals Need to Know

The following is a guest post by Christina Zurowski, co-founder of Veridical Tax Advisors Inc., a Canadian sales tax advisory firm specializing in Canadian sales tax advisory services for both Canadian and international businesses, and returning guest blogger, Diane Yetter, founder of the Sales Tax Institute. 

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What is that expression – there is nothing sure other than death and taxes? When we are talking about sales tax the expression may more aptly be, nothing is sure other than death and changes to sales tax. 

The changes in the Canadian sales tax system over the last few years, and the upcoming changes for 2013, clearly prove that point and have left many organizations scrambling to stay on top of their Canadian compliance obligations.  2013 is not proving to be any different with the unprecedented deharmonization and return to a Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) system in British Columbia ("BC"), harmonization in Prince Edward Island ("PEI"), and a “quasi” further harmonization in the province of Quebec.

Staying on top of these changes can be a daunting task - knowing the key issues to communicate to other departments so that your organization remains compliant on both the collection side – so that invoicing to your customers is correct; and on the purchasing side so that the tax is appropriately paid, and where possible, recovered.

Do we have plan in place?

• What is the risk to our business for not implementing these changes on a timely basis, either from a customer relation perspective, out of pocket cost, or tax compliance perspective?
• Who should lead the sales tax transition project?
• Which systems are impacted (often more than just your invoicing systems)?
• Who or which departments need to be involved to ensure that all systems are appropriately updated?
• What is the effective date of the changes?
• What are the transitional rules and the key dates for these changes?
• Can we complete adequate testing of all changes prior to the implementation date?
• What types or degree of training is required internally, to our customers, or others?

Some additional questions related to the “deharmonization” of BC from the Harmonized Sales Tax (“HST”) regime on April 1, 2013 are:

• How do the new registration and filing requirements impact our organization?
• What are the key changes to the new BC sales tax that make the transition back not as easy as simple as reverting back to the old BC sales tax tables that were in place prior to July 1, 2010?
• Are there any significant legislative changes that may impact our business?

PEI is harmonizing with the GST effective April 1, 2013.  For the most part, the transition should mimic the transition most organizations experienced for Ontario and British Columbia in 2010.  However, because each province that harmonizes has the ability to make certain specific modifications, organizations need to consider the potential impact of unique changes for PEI.

Quebec has announced that it is further harmonizing its provincial sales tax with the federal GST/HST.  However, organizations must understand that this is not a true harmonization as Quebec is continuing to administer the Quebec Sales Tax ("QST") separately. So the GST and QST must continue to be administered separately (filing, collection, payment and audit). While there are some significant changes for organizations to consider to ensure all the changes related to this further harmonization are accounted for, much of the benefit that is usually experienced with  harmonization are lost here, i.e., one legislation and one administration.

If you would like to learn more about how to help your business navigate the ongoing changes in Canadian sales tax and/or evaluate your organization’s degree of readiness, the Sales Tax Institute will be offering a webinar on “Upcoming Changes to Canada’s Harmonization Landscape and What it Means to You” on December 12, 2012 (register here).  The webinar will be presented by Christina Zurowski of Veridical Tax Advisors.

More About the Guest Bloggers: 

Christina Zurowski is one of the founding principals of Veridical Tax Advisors Inc., a firm specializing in Canadian sales tax advisory services. Christina is a frequent and recurring presenter at various conferences, including the CICA GST/HST Symposium and GST In Depth Tutorial as well as various US speaking engagements. 

Diane Yetter is President and Founder of YETTER, a sales tax consulting firm, and a strategist, advisor, and renowned speaker in the field of sales and use tax. A highly regarded tax professional, Diane was recently named one of Accounting TODAY's 100 Most Influential People in Accounting. Diane is also Executive Director of Sales Tax Institute offering sales and use tax classes and training.  Veridical Tax Advisors, YETTER and the Sales Tax Institute are members of the TaxForwardAlliance.

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"Smashing the Myth of the 'Tax-Free' Cyber Monday"

Missed Diane's previous State and Local Tax "Buzz" guest posts? Catch them here:

" 'Clouding' the Sales Tax Issue"

"Sales & Use Tax Research: How To Do It Right"

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Smashing the Myth of the “Tax-Free” Cyber Monday

Cyber Monday 2012 - Projected to
Surpass $1.5 Billion in Sales

It's Cyber Monday!!  The online equivalent to Black Friday and a day that's anticipated to be the busiest online shopping day of 2012.  And while many of you have been perusing the Internet for Cyber Monday “deals”, I’ve been checking the Internet for the media’s coverage of "Cyber Monday and taxes".  

Why? Well, if you’re a frequent visitor to The State and Local Tax “Buzz” or follow my contributions to the SalesTaxSupport.com blog, you're well aware that I follow (closely follow) and report on (and speak on and tweet about) “Internet Sales Taxes”. 

And, just as I did last year, I knew I’d be writing a "Cyber Monday – Taxes" post and wanted to see what message the media was sending this year. Would the media (once again) be sending the message that Cyber Monday shopping is “tax-free”? 

Although a few of this year’s articles have correctly reported the tax reality about online shopping (more on that in a bit), there certainly been no shortage of articles whose headlines promote the supposed “tax free benefit of online shopping" message. (See, This Cyber Monday Could Be Last Before Sales Taxes Hit, Washington Times, 11/25/12; Retailers Pressure Congress to Tax Next 'Cyber Monday', The Hill’s Technology Blog, 11/23/12; and, Will This Be Your Last Tax-Free Cyber Monday?, The Natural Truth – Boston Talks blog, 11/25/12)

But I've got news for you Cyber shoppers - for the vast majority of you, those Cyber purchases you make today are NOT tax free! 

Smashing the Myth - Purchases Made Over the Internet Are NOT Tax Free

Perhaps one of the biggest myths about shopping online is that purchases made over the Internet are "tax free". Here's a statement we've all heard (or maybe even said), "I'll just buy it over the Internet and save on sales tax".

Here's the reality - if you've purchased merchandise online which is taxable in your state and your Internet retailer didn't charge you sales tax, it's very likely that you still still owe tax to your state. That’s right, unless you're a resident of one of the five states that do not impose a state sales tax – Alaska, Delaware, Montana, New Hampshire, and Oregon - you, the purchaser, the ultimate consumer is responsible for reporting and paying the "use tax".

Wait A Minute, I'm Supposed to Pay a "Use Tax”? That’s News to Me!

I've often heard or read comments which lead me to believe that some folks quite honestly don't realize that their state requires them to voluntarily pay a use tax on their "tax-free" purchases. These comments take the flavor of "I'm supposed to pay a use tax? That's news to me!", or "I don't know how (or where or when) to report my use tax", or "What's the difference between a sales tax and a use tax anyway?"

Every state that imposes a sales tax has an equivalent "use tax". When tax is charged on the sales transaction, it's referred to as a sales tax. But when sales tax isn't charged at the time of sale and the purchase isn’t otherwise exempt, the tax that is owed is referred to as a use tax. In general, a use tax is defined as "a tax on the use or consumption of tangible personal property in a state". The same state tax rate applies whether it's charged as sales tax or paid as use tax. (However, a customer’s tax could be based on a different total rate in states which impose both a state rate and local jurisdiction rates, e.g., county, city, school district, etc.) Also, because a state decides what's taxable and what isn't, in general an item will be taxable (or exempt) regardless of whether it's purchased at the store down the road or on-line.

How do you report and pay your personal use tax? If you're a resident of a state that imposes a personal income tax (all but about seven states do), your use tax is reported and paid together with your personal income tax. Of the states with a personal income tax, at least half include a line on their tax return for reporting use tax. Some states also have use tax tables in their instructions to help residents estimate their annual use tax bill.  Heck, even states without a personal income tax - like Texas and Florida – have a separate form for reporting use tax. 

Alright, So Now I Know About "Use Tax", But I Also Heard There’s a Big Push to Pass Federal Legislation That Will Make All Internet Purchases Taxable.

Once again, Internet purchases are already taxable, but because the use tax is a voluntary tax - one that many folks, even those who are aware of it, don't pay – these purchases generally escape taxation.

 

Now, before I continue, you might be wondering why many online retailers don’t charge sales tax already.  It's not because of some "special subsidy" or "preferential treatment" for Internet sellers (as some media reports would lead you to believe). It's because an Internet retailer must have a connection or tie – a “nexus” to a state in order for the state to be able to require that retailer to collect and remit its sales tax. 

Often you’ll read that nexus means having a physical presence in a state, but states are redefining what a “physical presence” means and there are many "less than obvious" activities that could create a physical presence. At the end of the day, let's just say that an Internet retailer’s activities in a state must have exceeded what that particular state defines as establishing nexus for sales tax collection purposes.  (For more on nexus, see my prior “Buzz” post, “State Tax Nexus - Triggered By So Much Less Than an Obvious Physical Presence”. Also, here’s your author speaking on nexus in this YouTube video.)

So what IS the status of the Federal proposals? As you’re likely aware, three “internet sales tax” proposals have been introduced during the current 112^th Congressional session – the Main Street Fairness Act (S. 1452/H.R. 2701), the Marketplace Equity Act (H.R. 3179) and the Marketplace Fairness Act (S. 1832).  If it seems like you’ve been hearing about these proposals for a long time – you have! These proposals were all introduced back in 2011. Although all three of the proposals share the same goal – to require retailers to collect sales tax even in states in which a retailer lacks nexus – only two of the proposals, the Marketplace Equity Act and the Marketplace Fairness Act are possible contenders for passing.  With only a few weeks left before the 112^th Congressional session ends, the lobbying efforts by organizations advocating for, and against, these proposals are going full-steam.  It's also been suggested that one of these proposals could be tacked on to a “must pass” piece of legislation on fiscal cliff issues. (For more on the Federal proposals, see my listing of blog articles below.)  As I've said in the past, "it's not over till the fat lady sings" and she ain't sung yet - so anything is possible. 

Sylvia’s Summation

It’s Cyber Monday 2012 – and it's projected to be a BIG online shopping day! According to comScore, Inc., a leading Internet technology company that measures and analyzes what people do as they navigate the digital world, Cyber Monday sales, which approximated $1.25 billion in 2011, are projected to surpass $1.5 billion today!  That means that even if my post reaches millions today (all kidding aside, I'd be thrilled with a few hundred views) – these sales will go largely “untaxed.”  So if you've got some shopping to do today - go ahead and join in on the Cyber shopping fun. (Just don’t forget that use tax!)  

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Want to revisit the provisions in the Marketplace Equity Act and the Marketplace Fairness Act? See my prior posts here on The State and Local Tax "Buzz" and on SalesTaxSupport.com.

For more on S. 1832, the Marketplace Fairness Act, see the following posts:

• Congress Introduces a Hybrid Solution: The Marketplace Fairness Act, The State and Local Tax “Buzz”, 11/28/11
• From Main Street to Marketplace Fairness Acts– Sales Tax 2011, SalesTaxSupport, 11/28/11

For more on H.R. 3179, the Marketplace Equity Act, see the following posts: 

• The Marketplace Equity Act - Congress Introduces a Second Remote Seller Collection Bill, The State and Local Tax “Buzz”, 10/31/ 11
• The Marketplace Equity Act: The New Competition on the Block, SalesTaxSupport, 10/25/11

And for even more on the Federal Proposals, see:

• Internet Retailers Find Expanding Sales Tax Laws and Pending Federal Legislation Confusing and Concerning, The State and Local Tax “Buzz”, 10/31/12
• Top Internet Tax Questions from Retailers Reveal Complexity of Issue, Sales Tax Support, 10/24/12
• E-Commerce and Sales Tax Legislation, Avalara Sales Tax Management Thought Leadership Series, YouTube Video, 9/29/12
• Marketplace Equity vs. Marketplace Fairness. Is Either the ‘Right’ Solution?, SalesTaxSupport, 8/13/12
• Federal Internet Tax Gets Its Day in Committee, The State and Local Tax “Buzz”, 8/1/12
• Internet Sales Tax Legislation: What It Means to Small-Medium E-Commerce (A Plain English Guide), Whitepaper, STS Publishing, LLC, May 2012 (Note, if you're  reading this on a mobile device, this whitepaper opens up as a PDF)
• Sales Tax Act – Main Street or Marketplace. Is SST Issue Key?, SalesTaxSupport, 12/22/11

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