Posted tagged ‘online retailer’

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 SALT News Update

September 6, 2011

The Alliance for Main Street Fairness Launches Website Targeting Amazon.com

On August 25th, the Alliance for Main Street Fairness launched a web site that asked individuals to anonymously submit stories relating to Amazon.com’s alleged efforts to avoid collecting state sales taxes. The Alliance, representing mainly brick-and-mortar business, has pushed for states to enact “Amazon” laws, arguing that such laws promote tax fairness.  Conversely, opponents to “Amazon” laws believe that states are reaching beyond their constitutional limits.

Although Supportive of “Amazon” Law, Wal-Mart Not Collecting California Sales Taxes by Online Retail Partner

CSN Stores, LLC is a Wal-Mart Marketplace vendor which uses an online platform.  During June, California Governor Jerry Brown signed the state’s “Amazon” law, which had been supported by Wal-Mart.  The California law established nexus and collection obligations for remote sellers who maintain in-state affiliate relationships.  While CSN has been making online sales into California, Wal-Mart has not collected taxes on those sales, according to the Los Angeles Times.

Streamlined Sales Tax Governing Board Opposes Federal Digital Goods and Services Taxation Act

On August 31, the Streamlined Sales Tax Governing Board passed a resolution opposing the Digital Goods and Services Tax Fairness Act.   The Act seeks to set national guidelines for state and local taxation of digital goods in a stated attempt to promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services.  The Board opposes the Act because they believe that it contains language that conflicts with the Streamlined Sales and Use Tax Agreement.  Furthermore, some Board delegates argue that federal legislation should not address the digital goods taxation issues.  Instead, those delegates argue that the issue should be addressed through the streamlined agreement.

Pennsylvania Third Party Preparers Required to File Electronically or Pay Penalty

On August 27, the Pennsylvania Department of Revenue issued a notice that any third party preparer who prepares fifty (50) or more Pennsylvania corporate tax reports is required to file electronically for all calendar years following the calendar year in which the third party preparer prepares fifty (50) or more Pennsylvania corporate tax reports.  If a third party preparer fails to file corporate tax reports electronically per the requirements of the notice, the preparer will be subject to a penalty of 1% of the tax due, amounting to a minimum penalty of $10 and a maximum penalty of $500.  Certain exceptions allowing for a waiver of penalty exist under delineated exclusions contained in the notice.

State DOR Rulings

The Iowa Department of Revenue issued two rulings. The first ruling addresses the taxation of “loyalty points” that are awarded by mobile companies and then used to reduce the purchase price of cell phones. In the analysis, such reductions in price are treated akin to coupons, and reductions of the purchase price subject to sales tax.

In the other ruling,  the Iowa Department of Revenue ruled that where a cell phone is replaced under a warranty program, the replaced cell phone is not subject to sales tax, but the deductible paid in the exchange (in this case, $100) is subject to sales tax.

Missouri’s Department of Revenue recently issued a ruling regarding the taxation of iPads and similar equipment. Missouri provides for a  sales tax holiday for retail sales of clothing, personal computers, and school supplies. The question is whether an iPad is a “computer” and therefore exempt from sales tax on the holiday. The Department answered in the affirmative for iPads, but not for “readers” such as the Kindles.

New Regulations

Rhode Island proposes a new regulation for the taxation of the sale of marijuana. The rule provides that such sale would be exempt when prescribed, just like other prescription drugs.

Legislative Affairs

Maryland’s  Department of Legislative Services staff are expected to testify to the Maryland Senate that a gross receipts tax would bring in more gross revenue. (We are withholding comment on the University of Maryland’s new uniforms, which apparently are a hit on campus.) You can see the a Power Point presentation here.

Judicial and Administrative Decisions

New York disregards the form of a transaction as between a husband and a wife.

The New York Division of Tax Appeals ruled that the auditor failed to give adequate notice for records. As time was running out for making the assessment, the auditor rushed through an audit, requested records, but failed to give a reasonable opportunity to the taxpayer to comply. The auditor than generated an estimated audit, which the taxpayer challenged as improper and inaccurate. The taxpayer won.