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H.R. 327 Passes – Pennsylvania Creates New Tax Modernization Subcommittee

June 21, 2017

By: Jennifer Weidler Karpchuk

On June 19, the House unanimously voted to approve H.R. 327, thereby establishing a subcommittee on tax reform and modernization.  You can see our previous discussion of H.R. 327 here.

Since H.R. 327 was a House Resolution, it does not need to be approved by the Senate.  The subcommittee will have nine Finance Committee members who will be responsible for submitting their findings and recommendations by November 30, 2018.

Resolution Proposes Establishing Pennsylvania Subcommittee on Tax Modernization and Reform

June 13, 2017

By: Jennifer Weidler Karpchuk

During May 2017, H.R. 327 was introduced and reported as committed by the House on June 13, 2017.  H.R. 327 would establish a select subcommittee on tax modernization and reform to investigate, review, and make recommendations concerning the process, rates, and methods by which revenue in Pennsylvania is collected and assessed on taxpayers.

The purpose of the Resolution is to examine and review Pennsylvania’s system of taxation to ensure an equitable and efficient means by which taxes are assessed and collected and to facilitate a fair and competitive marketplace in an ever-changing global economy.

The subcommittee would investigate, review, and make findings and recommendations regarding: (1) the rates and means by which taxes are assessed and collected; (2) whether certain taxes are outdated or could be modernized to reflect the current economy; and (3) how to maintain competitiveness and reduce the overall burden on taxpayers without jeopardizing the stability of overall revenue. The subcommittee would also review other states’ best practices and methods for levying and collecting various taxes.  Finally, the subcommittee would develop recommendations which: (1) encourage equitable and fair tax policy; (2) provide certainty and uniformity for taxpayers; (3) facilitate cost-effective and economic tax collection practices; and (4) promote transparency and simplicity to aid taxpayer understanding of Pennsylvania’s tax policies.

The subcommittee would be responsible for submitting a report of its findings by November 30, 2018.

H.R. 327 is a step in the right direction. Whenever a state is willing to reconsider its own practices and to analyze what other states are doing well and use that knowledge to reevaluate its own system, there is great potential that both taxpayers and the taxing state can benefit.

You can follow the progress of the Resolution here.

Tennessee Agrees to Halt Out-of-State Sales Tax Collection Pending Outcome of Litigation Challenging Quill

June 7, 2017

By Jennifer Weidler Karpchuk

During 2016, Tennessee amended its law to join the growing list of states challenging Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (see past coverage here).  Pursuant to Tenn. Comp. R. & Regs. § 1320-05-01.129(2) (“Rule 129”), out-of-state dealers were required to register by March 1, 2017 and begin collecting sales tax by July 1, 2017.  Essentially, Rule 129 requires an out-of-state seller to collect and remit Tennessee sale and use tax based solely upon solicitation of sales from outside of Tennessee  in excess of the $500,000 statutory minimum in the state.  Thus, Rule 129 is a direct challenge to Quill, as it intentionally runs afoul of the Quill physical presence standard.

During March, a lawsuit was filed in the Davidson County Chancery Court by the American Catalog Mailers and NetChoice (an association of e-commerce retailers) challenging Rule 129 on the basis of Quill.  The complaint seeks a declaratory judgment against the Tennessee Department of Revenue regarding Rule 129.

On April 10, 2017, the Court issued an agreed Order preventing the enforcement of Rule 129 while the lawsuit is pending.  During May, the Department released Notice #17-12, which confirms that the Department will not require taxpayers to collect and remit tax pursuant to Rule 129 while the case is pending.

Crutchfield Settles; Eyes Turn to South Dakota and Alabama for Challenge to Quill

April 26, 2017

By: Jennifer Weidler Karpchuk

As our previous post explains, the U.S. Supreme Court had extended the time to file petitions for certiorari in Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio (U.S. Supreme Court Docket No. 16A774), involving the Ohio Commercial Activity Tax (“CAT”).  However, prior to the deadline, the parties agreed to forego further litigation and entered into an undisclosed settlement agreement.  As such, the Ohio Supreme Court’s decision upholding the Ohio CAT stands. See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio, 2016 WL 6775765 (2016).

Those hoping the U.S. Supreme Court would revisit Quill through Crutchfield may be disappointed by this settlement, but should look to South Dakota and Alabama as their respective test cases challenging Quill make their way through the courts. See South Dakota v. Wayfair, Inc., et al., S.D. Cir. Ct., 6th Jud. Dist., Dkt. No. 32CIV16-000092, 03/06/2017; Newegg Inc. Notice of Appeal, Alabama Tax Tribunal.

Don’t Delay – Pennsylvania’s 2017 Tax Amnesty Program Starts Today

April 21, 2017

By Jennifer Weidler Karpchuk

As of today, April 21, 2017, Pennsylvania’s 2017 Tax Amnesty Program has officially commenced.  Those individuals with potential Pennsylvania tax liabilities should consider taking advantage of the program, which is slated to run through June 19, 2017.  During those sixty (60) days, the Pennsylvania Department of Revenue will waive all penalties and half of the interest for anyone who participates.  For more information, see our previous blog post hereContact us to find out if amnesty is the right choice for you.

Proposed Remote Seller Notice and Reporting Requirements in Pennsylvania Post-DMA

March 8, 2017

By Adam Koelsch

Just a few months after the U.S. Supreme Court declined to review the decision of the Tenth Circuit in Direct Mktg. Ass’n v. Brohl — which upheld Colorado’s sales tax notice and reporting requirements for out-of-state retailers — a Pennsylvania lawmaker has reintroduced a bill requiring online retailers to notify Pennsylvania purchasers when sales and use tax is due on their purchases.

In 2010, the Colorado legislature enacted a statute which requires a remote retailer that sells products to Colorado customers, but does not collect Colorado sales tax, to notify those customers that sales or use tax is due on certain purchases made from the retailer and that Colorado requires those customers to file sales or use tax returns.  Colo. Rev. Stat. § 39-21-112 (3.5)(c)(I).  Failure to provide that notice subjects the retailer to a penalty of five dollars ($5.00) for each such failure, unless the retailer shows reasonable cause for such failure.  Colo. Rev. Stat. § 39-21-112 (3.5)(c)(II).

In addition, the statute requires that such retailers must send a notification to each Colorado customer by January 31 of each year showing, among other information, the total amount paid by the customer for Colorado purchases made from the retailer in the previous calendar year.  Colo. Rev. Stat. § 39-21-112 (3.5)(d)(I)(A).  Failure to send that notification subjects the retailer to a penalty of ten dollars ($10.00) for each such failure, unless the retailer shows reasonable cause for such failure.  Colo. Rev. Stat. § 39-21-112 (3.5)(d)(III)(A).

The statute further requires that such retailers file an annual statement for each Colorado customer with the Department of Revenue showing the total amount paid for Colorado purchases by such customers during the preceding calendar year, to be filed on or before March 1 of each year.  Colo. Rev. Stat. § 39-21-112 (3.5)(d)(II)(A).  Failure to file that annual statement subjects the retailer to a penalty of ten dollars ($10.00) for each purchaser that should have been included in the statement, unless, again, the retailer shows reasonable cause for such failure.  Colo. Rev. Stat. § 39-21-112 (3.5)(d)(III)(B).

The Data & Marketing Association (“DMA,” formerly the Direct Marketing Association), challenged the above Colorado notice and reporting requirements in federal court, claiming that those requirements violated the Interstate Commerce Clause of the U.S. Constitution by imposing burdens on out-of-state retailers that were not imposed upon in-state retailers.  In 2011, a preliminary injunction was issued by the federal district court, which, in 2012, also concluded that the Colorado statute violated the Commerce Clause.  In 2013, the Tenth Circuit dissolved the injunction and reversed the decision of the district court — holding that the district court did not have jurisdiction pursuant to the Tax Injunction Act — only to, in turn, have its decision reversed by the U.S. Supreme Court on March 3, 2015, in Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015).  On remand, the Tenth Circuit again reversed the district court, holding that the Colorado statute did not violate the Commerce Clause.  On December 12, 2016, the U.S. Supreme Court denied DMA’s petition for a writ of certiorari.

Meanwhile, after the Tenth Circuit had dissolved the preliminary injunction in 2013, DMA had filed for, and had obtained, another injunction in Colorado state court.

But, on February 23, 2017, DMA and the State of Colorado settled the case, thereby dissolving the state court injunction and finally ending the litigation.  As part of that settlement, the Department of Revenue agreed that the litigation involving DMA over the constitutionality of the statute had constituted reasonable cause for non-compliance with the statute, and that, therefore, the Department would not require compliance with the statute and its accompanying regulations before July 1, 2017, and that it would waive any penalties for failure to comply with the statute and the regulations before that date.

Subsequent to the U.S. Supreme Court’s refusal to review the Tenth Circuit’s decision, a number of states have introduced bills to create notice and reporting requirements similar to those of Colorado.  In particular, in Pennsylvania, on February 17, 2017, Rep. W. Curits Thomas introduced H.B. 542 — a bill substantially similar to the one which he had introduced in 2015, only to have it die in committee when the legislative session adjourned.

H.B. 542 imposes more modest requirements than the Colorado statute.  For instance, H.B. 542 does not require that annual notifications be sent to purchasers, or require that an annual statement be filed with the Pennsylvania Department of Revenue.  Instead, the proposed statute requires that a seller or a remote seller “conspicuously provide” to a Pennsylvania purchaser, on each separate sale of tangible personal property or taxable services via an Internet website operated by that seller or remote seller, the following notice:

Unless you paid Pennsylvania sales tax on this purchase, you may owe a Pennsylvania use tax on this purchase based on the total sales price of the purchase in accordance with the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971. Visit http://www.revenue.state.pa.us for more information.  If you owe a Pennsylvania use tax on this purchase, you must report and remit the tax on your Pennsylvania income tax form.

H.B. 542 § 279(a).  The proposed statute provides no guidance regarding what constitutes a sufficiently “conspicuous” notice.

A failure by the seller to provide such notice will subject the seller to a fine of “not less than” five dollars ($5.00) for each such failure.  H.B. 542 § 279(b).  The proposed statute would be applicable only to transactions occurring more than sixty (60) days after its enactment.

In light of this proposed statute, and those like it introduced in other states, remote sellers should be alert to any newly imposed notice and reporting requirements in each of the states in which they sell their products.

The text of H.B. 542 is available here.

Weekly Update for 2/24: Oregon Legislature Approves Tax Break for Facebook; Tennessee and Virginia Legislation on “Amazon” Laws; Washington Privatization of Liquor Sales; Summary Judgment for Online Travel Companies in Tennessee…and more.

February 27, 2012

 by Jennifer Weidler

KENTUCKY

U.S. Supreme Court Denies Petitions for Writ of Certiorari in Kentucky Tax Lien Case

The United States Supreme Court denied a petition for writ of certiorari in a Kentucky case dealing with general tax liens.  The Kentucky Supreme Courtpreviouslyheld that professional lenders with actual or constructive knowledge of an earlier recorded general tax lien are precluded from benefiting from an equitable reordering of the liens.  Since the U.S. Supreme Court denied certiorari, the Kentucky Supreme Court’s decision will stand.

 

NEW JERSEY

New Jersey Tax Court Dismisses Property Tax Assessment for Failure to Respond to Tax Assessor’s Financial Information Request

The New Jersey Tax Court has dismissed a property tax appeal, holding that the owner did not show good cause for its failure to respond to the tax assessor’s financial information requests.  The owner did not dispute actual receipt of the request for the financial information and there was no evidence that it found the request to be confusing or ambiguous.

 

OREGON

Oregon Legislature Approves Bill Aimed at Tax Break for Facebook

The Oregon Legislative Assembly approved a bill, SB 1532, which would ensure that data centers, such as those owned by Facebook, would not be taxed on their intangible assets.  The legislation comes after a dispute between Facebook and the Department of Revenue, in which the Department of Revenue determined that Facebook met the definition of a “communications company,” thereby allowing for it to be centrally assessed by the Department.   The legislation would clarify that a company operating a data center, such as Facebook’s, would not be centrally assessed if: (1) the property is part of an enterprise zone agreement, and (2) the data center represents more than 95 percent of its total property owned within the state.

 

TENNESSEE

Tennessee House Approves Legislation to Implement “Amazon” Law

The Tennessee House approved legislation, HB 2370, which would implement an agreement between the Tennessee Governor and Amazon.com regarding the collection of sales taxes in the state.  The legislation would grant Amazon.com an exemption from the collection of state sales tax through the sooner of January 1, 2014, or upon the passage of a federal law addressing the issue of remote sales.  For prior coverage of the legislation, click here.

 

U.S. District Court Issues Summary Judgment on Behalf of Online Travel Companies in Tennessee

The Nashville Division of the U.S. District Court for the Middle District of Tennessee issued summary judgment on behalf of online travel companies, who challenged a class action lawsuit, which was filed against them by the City of Goodlettesville.  The complaint alleged a failure to remit hotel occupancy taxes to the city.  The court found that the online travel companies did not purchase or take title to the hotel rooms and therefore did not fall within the statutory definitions applicable to the hotel tax.  Goodlettesville v. Priceline et al.,Dkt. No. 3:08-CV-00561 (U.S. Dist. Ct., Middle Dist. of Tennessee 2012).  A Pennsylvania court recently reached a similar holding with regard to the online travel company Expedia.  For more details, click here.

 

VIRGINIA

Virginia Approves Legislation to Phase-In Single-Sales-Factor Apportionment for Retailers

The Virginia General Assembly approved legislation, HB 154, which would phase-in mandatory single-sales-factor apportionment for retailers.  The legislation is slated to take effect on July 1, 2012.

 

Virginia Governor Reaches Agreement with Legislators on Amazon Legislation

Virginia’s Governor announced that he had reached an agreement with legislators regarding the Tax Fairness, SB 597, which would have required Amazon.com to collect sales taxes if it builds fulfillment centers in the state.  An amendment was added to the bill, and approved by the House of Delegates’ Finance Committee, authorizing the state to require an out-of-state seller with distribution centers in the state to collect state sales tax on in-state purchases on the earlier or September 1, 2013 or the effective date of federal legislation addressing the issue of remote sales.  For past coverage of the legislation, click here.

 

WASHINGTON

Washington DOR Issues Updates on Privatization of Spirits Sales

The Washington Department of Revenue has dedicated a portion of its website to guidance relating to the privatization of spirits sales in the state.  The links include updated Frequently Asked Questions as well as specific guidance on Initiative 1183, which requires the state to close state liquor stores on May 31, 2012, thereby allowing for the privatization of spirits sales.