Resolution Proposes Establishing Pennsylvania Subcommittee on Tax Modernization and Reform

Posted June 13, 2017 by Jennifer Weidler Karpchuk
Categories: Pennsylvania, SALT Update, Uncategorized

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regarding: (1) the rates and means by which taxes are assessed and collected; (2) whether certain taxes are outdated or could be modernized to reflect the current economy; and (3) how to maintain competitiveness and reduce the overall burden on taxpayers without jeopardizing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

Posted June 7, 2017 by Jennifer Weidler Karpchuk
Categories: Uncategorized

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

Posted April 26, 2017 by Jennifer Weidler Karpchuk
Categories: Alabama, Ohio, SALT Update, South Dakota, U.S. Supreme Court, Uncategorized

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

Posted April 21, 2017 by Jennifer Weidler Karpchuk
Categories: Corporate Tax, Franchise Tax, Income Tax, Pennsylvania, Sales and Use Tax, SALT, SALT Update, Uncategorized

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.

Update on Supreme Court Retroactivity Litigation

Posted April 6, 2017 by SALT Blawg
Categories: Michigan, SALT, SALT Update, U.S. Supreme Court, Washington

Tags: , , ,

By Adam Koelsch

As previously reported on the SALT Blawg, Chamberlain Hrdlicka attorneys Stewart M. Weintraub and Adam M. Koelsch, together with Peter L. Faber of McDermott, of Will & Emery LLP, filed in the U.S. Supreme Court an amicus brief on behalf of the American College of Tax Counsel in support of the petitioners challenging a retroactive repeal of tax legislation by the state of Michigan.  Although the petitioners and the amici had asserted various reasons for granting certiorari, the most prominent of those assertions was that the repeal, stretching seven years into the past, violates the Due Process Clause of the U.S. Constitution.

Subsequent to those submissions, the Supreme Court removed from its conference calendar the petition submitted in another pending retroactive tax legislation case from Washington state (Dot Foods, Inc. v. State of Washington), presumably to consider it jointly with the Michigan cases at a later date, and also ordered Michigan to submit a response to the petitions filed — moves widely seen as signaling that the Court is interested in addressing Due Process issue.

Michigan has since submitted its response, setting forth a novel basis for denying cert.:  that the 2014 legislation challenged by the petitioners — which repealed retroactive to 2008 a statute authorizing a three-factor apportionment election that had existed since 1970 — was a “legislative clarification” of a 2008 Business Tax statute that had supposedly mandated single-factor apportionment for all prospective years, and was therefore not retroactive at all.  Thus, according to Michigan, application of that principle of state statutory-construction law constitutes an adequate and independent state law ground to uphold the decision of the Michigan state court, thereby depriving the Supreme Court of jurisdiction to review the issue.

Not so, replied the petitioners.  IBM and Skadden Arps submitted reply briefs on March 24 and 27, respectively.  IBM’s brief challenged the assertion that the doctrine of “legislative clarification” in fact exists, and asserted that the any new law that applies to activities (or tax years) in the past is, by definition, retroactive.  Skadden Arps, in its brief, added that the Michigan Court of Appeals had never mentioned the doctrine in its decision, while explicitly acknowledging the statute’s retroactive effect, and that, in any event, “the Supremacy Clause does not allow federal retroactivity doctrine to be supplanted by the invocation of a contrary approach to retroactivity under state law.”  On March 28, a brief filed on behalf of Goodyear Tire, Deluxe Financial Services, and Monster Beverage reiterated the arguments of IBM and Skadden Arps.

The briefs for the Michigan petitioners and for the petitioners in Dot Foods will all be considered during the Court’s conference on April 13, and the Court’s decisions could be announced as early as April 17.

Here, you can find copies of:  the Michigan response briefthe IBM reply briefthe Skadden Arps reply brief, and the Goodyear et al. reply brief.

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

Posted March 8, 2017 by SALT Blawg
Categories: Colorado, Pennsylvania, Sales and Use Tax, Uncategorized

Tags: , , , , , , ,

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.

Start of Pennsylvania 2017 Tax Amnesty Program Draws Near – Do You Qualify?

Posted February 24, 2017 by Jennifer Weidler Karpchuk
Categories: Corporate Tax, Franchise Tax, Income Tax, Pennsylvania, Sales and Use Tax, SALT Update

By Jennifer Weidler Karpchuk

In less than two (2) months, Pennsylvania’s 2017 Tax Amnesty Program will commence.  Those individuals with potential Pennsylvania tax liabilities should consider taking advantage of the program, which is slated to run from April 21, 2017 through June 19, 2017.  During those sixty (60) days, the Pennsylvania Department of Revenue (“Department”) will waive all penalties and half of the interest for anyone who participates.

The program applies to delinquencies existing as of December 31, 2015 – whether or not the delinquency is known to the Department.  The litany of taxes eligible for the program includes:

  • Agriculture Cooperative Tax;
  • Bank and Trust Company Shares Tax;
  • Capital Stock or Foreign Franchise Tax;
  • Cigarette Tax;
  • Corporate Loans Tax;
  • Electric Cooperative Tax;
  • Employer Withholding Tax;
  • Financial Institutions/Title Insurance Company Shares Tax;
  • Fuel Use Tax;
  • Gross Premiums Tax;
  • Gross Receipts Tax;
  • Hotel Occupancy Tax (including state administered 1% local Hotel Occupancy Tax for Philadelphia and Allegheny);
  • Inheritance and Estate Tax;
  • Liquid Fuels Tax;
  • Malt Beverage Tax;
  • Marine Underwriting Profits Tax;
  • Motor Carriers Road Tax, for IFTA vehicles, PA portion only;
  • Motor Vehicle Carriers Gross Receipts Tax;
  • Mutual Thrift Institutions Tax;
  • Oil Company Franchise Tax;
  • Parimutuel Wagering and Admissions Tax;
  • Personal Income Tax;
  • Public Transportation Assistance (“PTA”);
  • Public Utility Realty Tax;
  • Realty Transfer Tax, including Local Realty Transfer Tax;
  • Sales and Use Tax, including Local Sales and Use Tax for Philadelphia and Allegheny;
  • Surplus Lines Tax;
  • Unauthorized Insurance Tax; and
  • Vehicle Rental Tax.

Notably, the 2017 Tax Amnesty Program does not include Unemployment Compensation (which is administered by the Department of Labor and Industry), nor does it include any tax administered by another state, local government, or the Federal government.

Pursuant to the program, the taxpayer is responsible for paying the principal tax due, plus one-half interest.  The Department will, in turn, rescind any liens or other enforcement actions for that debt; waive all penalties associated with the debt; waive one-half interest; and waive any fees (ex. lien filing fees or collection agency fees).

Along with the payment for all taxes and one-half of the interest, all missing tax returns or reports must be filed no later than June 19, 2017.  However, a taxpayer with unknown liabilities reported and paid pursuant to the Tax Amnesty Program is eligible for a limited look-back period whereby the taxpayer will not be liable for any taxes of the same type due prior to January 1, 2011.

Those taxpayers who are eligible for the 2017 Tax Amnesty Program, but do not participate will be subject to a five-percent (5%) non-participation penalty.  Generally speaking, individuals, businesses and other entities with state tax delinquencies as of December 31, 2015 (whether known or unknown to the Department) are eligible to participate in the program.  However, any taxpayer who participated in the Department’s 2010 Tax Amnesty Program is ineligible to participate in the 2017 program.  Taxpayers who have entered into Voluntary Disclosure Agreements with the Department are likewise ineligible to participate.  Nevertheless, taxpayers who have entered into deferred payment agreements with the Department are eligible for the 2017 Tax Amnesty Program.  Notably, a taxpayer who applies for tax amnesty forfeits all future appeal rights for liabilities paid through the program.

Business taxpayers may request a statement of account that shows all liabilities by visiting e-TIDES at http://www.etides.state.pa.us.  Individual taxpayers may review account information, including all liabilities, by visiting the Personal Income Tax e-Services Center at http://www.doreservices.state.pa.us.  Please contact us if you need assistance in determining whether you qualify for the 2017 Tax Amnesty Program and whether participation in the program is the right choice for you.