Minnesota: "Click-Through" Nexus and tax on digital products

Minnesota: Effective for sales and purchases made after June 30, 2013, remote sellers that enter into an agreement with a resident of Minnesota whereby the resident receives a commission or other consideration to direct potential customers to the seller will be presumed to have Minnesota nexus for sales and use tax purposes unless rebutted by proof that the resident did not engage in any solicitation in the state on behalf of the retailer.

Additionally, effective for sales made after June 30, 2013, the definition of taxable sales and purchases are expanded to include digital products. These include digital audio works, digital audiovisual works and digital books that are transferred electronically or on tangible medium.

 

Latest News on Colorado Remote Sellers Reporting Requirements

On August 20, 2013, the United States Court of Appeals for the Tenth Circuit remanded

Direct Marketing Association v. Barbara Brohl to the District Court of Colorado and instructed the lower court to discuss the Commerce Clause claims of the Direct Marketing Association for lack of jurisdiction.

 

While the District Court must dissolve its permanent injunction against the Department from

enforcing Colorado’s remote seller sales and use tax notice and reporting requirements and dismiss

DMA’s Commerce Clause claims upon which the District Court ruled, the Court of Appeals did not

order the dismissal of DMA’s other claims that were stayed pending the resolution of the Commerce

Clause claims. It is unclear what effect the Court of Appeal’s ruling will have on these other claim.

When the District Court dissolves its permanent injunction against the Department, the Department

is expected to issue guidance regarding the timing of it enforcement of the remote seller sales tax

notice and reporting requirements. It is unclear what affect recent Colorado legislation

enacted in anticipation of the proposed federal Marketplace Fairness Act will have on the Department’s

enforcement of Colo. Rev. Stat. § 39-21-112.5(3.5) and its associated regulations.

Prime Global's 34 Annual Tax Conference

I am presenting update on State and Local Tax at Prime Global's 34 Annual Tax Conference which will be held on January 5-8, 2014 at Atlantis Resort in Paradise Island, Bahamas.

Alabama: Proposal on Intrastate Nexus

The Alabama Department of Revenue has withdrawn an earlier controversial rule proposal on establishing intrastate nexus for local sales/use tax purposes and replaced it with a more limited rule proposal that would impart nexus for local sales/use tax purposes when a business delivers goods within a locality via its own trucks/vehicles or contract carrier.

This new rule proposal parallels Alabama’s interstate sales/use nexus rule, wherein delivery into Alabama by an out-of-state seller creates nexus with Alabama if the seller uses its own vehicles/contract carrier to make the delivery

Marketplace Fairness Act - Whether it Passes or Not Sales Tax Nexus is Complex Issue

The Senate passed Market Fairness Act ("MFA" or "Internet Tax") on May 6, 2013, but, the proposed legislation is languishing in the House. Will it pass? No one knows.

What we do know is whether MFA passes or not, sales tax nexus will remain a complicated issue. Additionally, states budgets are tight so they have been busy passing more aggressive nexus laws. Whether MFA passes or not, nexus will be an issue for the foreseeable future for businesses.

The worst time to find out that your business has nexus in a state is when a state is inquiring about the company's business activities. At this point your options are limited. When it comes to nexus, it is better to be proactive rather than reactive. For those who are proactive, there are voluntary disclosure programs that can limit the amount of the company's exposure by reducing the look back period, abate the penalty, and a few states abate some or all of the interest. Here are proactive action steps that businesses can take to protect themselves: 

Step One: Determine if you have nexus

If you answer yes to any of the following questions your business probably has nexus in the state.

Do you have employees who live in, or travel to, another state to make sales calls, perform training or installation services, or to make deliveries or repairs?

 

Do you own or lease any real or tangible property in another state such as an office, warehouse, retail store, equipment, machinery, etc.?

Do you maintain any inventory, whether consigned, stored, or carried by sales representatives in another state?

 

Do you use independent (non-employees) sales reps or manufacturer's reps or brokers to perform sale activities for your business in other states?   

 

Step Two: Taxable Sales 

If you have determined your company has nexus the next step is to figure out if what you sell is taxable. For companies that only sell tangible personal property this may be easy. For other companies it may be harder. 

Step Three: Determine your exposure.

If you determine that your business has nexus and you have taxable sales; you will need to determine the amount of the company's exposure. If you have never been registered or filed a tax return in a state than there is no statute of limitations. In theory, if a state finds you they can go back to the date you started doing business in the state. In reality States routinely go back seven to 10 years. Before you contact the state you need to determine company's exposure and course of action that works best for you.   

Step Four: Evaluate your options.

Once you have completed the first three steps it is time to choose a course of action that works best for you. If company's exposure is minimal and you don’t anticipate a lot of sales in the future, you may choose to do nothing. If the company's exposure is minimal; but,  you expect sales will grow in a state you may choose to do a normal registration and pay outstanding tax, penalty and interest. However if the company's exposure is significant then you will probably want to use a mitigation program like an amnesty or a voluntary disclosure agreement (VDA) to resolve the issue.

Summary
Nexus is and will be vitally important whether or not the MFA passes, and it pays to be proactive. When it comes to nexus, if you are not proactive, then you may be setting company up for large tax bill. This is what happens when a state finds businesses years later and asserts the company has nexus. When that happens the business may be subject to paying taxes plus penalties and interest. This is a tragedy because if business knew it’s nexus it a state it could have registered and its customers would have paid the tax. Do not hesitate to contact me at 954.599.5985 or klake@bpbcpa.com if you have any questions on Marketplace Fairness Act or sales tax nexus.

Bottom line, software that is downloaded electronically it is not subject to Florida sales tax

A license to use software that is downloaded electronically by the customer is a service transaction and is not subject to Florida sales tax, regardless of whether or not the software is customized or canned, provided it is not part of the sale of tangible personal property.

 

Additionally, a service agreement that covers the cost of maintaining, repairing, or replacing software that was electronically downloaded is also exempt. If your client or your company purchased electronically downloaded software during the last three years, they may be entitled to refund.

 According to Florida Technical Assistance Advisement (TAA) 10A-028, the license to use software that is downloaded electronically by the customer is a service transaction and is not subject to sales tax provided it is not part of the sale of tangible personal property.

FLORIDA STATUTES

Section 212.05, F.S., provides that the sale of tangible personal property is subject to tax. The term “sale” includes a license to use tangible personal property. See Section 212.02(15), F.S. Service only transactions, except those authorized for taxation by Chapter 212, F.S., are generally not subject to tax. When tangible personal property and services are a part of the same sale, the entire sales price is subject to tax. See Section 212.02(16), F.S. Software supplied on a tangible medium is taxable. Charges for services that are part of the sale of such taxable software are part of the sales price and are subject to sales tax.

Rule 12A-1.032, F.A.C., provides that a sale of customized software is a service transaction and is not subject to sales tax provided the customized software is not part of the sale of other tangible personal property. Likewise exempt is a sale that solely involves software, canned or customized, that is provided to the customer in an electronic format, as there is no conveyance of tangible personal property. Keep in mind that electronically accessed software is subject to Florida sales tax when sold as part of the sale of tangible personal property.

Section 212.0506, F.S., indicates that an agreement that covers the cost of maintaining, repairing, or replacing canned or prepackaged software (tangible personal property) is subject to sales tax, while an agreement that covers the cost of maintaining, repairing, or replacing customized software or software that was downloaded electronically is not subject to sales tax.

BOTTOM LINE:

Please know that a Technical Assistance Advisement under section 213.22, F.S. is binding on the Department only under the facts and circumstances described in the request.
Your client or your company's facts will determine whether or not a sale or purchase of software is taxable; but, the bottom line is if software is downloaded electronically it is not subject to Florida sales tax.

 

Florida: New Law Provides for Temporary Expansion of Manufacturing Exemption

Florida: New Law Provides for Temporary Expansion of Manufacturing Exemption

Governor signed HB into law on May 17, 2013. The new law, Fla. Stat. § 212.08(7)(kkk) which expands Florida’s sales/use tax exemption for manufacturers is effective April 30, 2014. Under current law, only new or expanding businesses are eligible for this manufacturing exemption.

Under this new exemption, industrial machinery and equipment is exempt from state sales/use tax when purchased by eligible manufacturing businesses for use at a fixed location within Florida for the manufacture, processing, compounding, or production of items of tangible personal property for sale.

An eligible manufacturing business under these new provisions is defined as a business whose primary business activity (activity representing greater than 50% of all activities) at the location where the industrial machinery and equipment is located is within the industries classified under 2007 NAICS codes 31, 32, and 33. This new temporary sales/use tax manufacturing exemption is part of a broad economic development accountability bill and is set to expire April 30, 2017.

Please contact me if you have any questions on expanded exemption or if you are interested in learning about economic development accountability bill. My telephone number is 305.960.1202 and my email address is klake@bpbcpa.com.

U.S. Senate Approves Legislation Authorizing States to Collect Sales and Use Taxes From Out-of-State Sellers

U.S. Senate Approves Legislation Authorizing States to Collect Sales and Use Taxes From Out-of-State Sellers

The U.S. Senate on May 6 approved legislation that generally would make it easier for a state to collect sales and use taxes from sales made by out-of-state or "remote" sellers (such as catalogue or online retailers) that do not have an in-state physical presence. The Marketplace Fairness Act of 2013 (S.743) cleared the chamber by a vote of 69-27 and now heads to the House of Representatives for consideration.

Marketplace Fairness Act

The Marketplace Fairness Act generally provides a state that is a member of the Streamlined Sales and Use Tax Agreement with the authority to enact laws requiring remote sellers to collect and remit sales and use taxes to the state with respect to "remote sales" sourced to that state. 　If a state is not a member of the Streamlined Sales and Use Tax Agreement, the state may exercise such authority if the state adopts certain "minimum simplification requirements" relating to the administration of the tax, including a single audit for all state and local taxing jurisdictions within the state, a single sales and use tax return, and uniformity of the tax base. A non-member state must also provide remote sellers with free software for the purposes of calculating sales and use taxes due on each transaction at the time the transaction is completed and for purposes of filing state sales and use tax returns. Small businesses are exempt under the Act if their annual gross receipts from remote sales in the U.S. do not exceed $1 million.

Next Steps

The measure now heads to the House of Representatives, where it most likely will be routed to the Judiciary Committee. House leaders have not indicated whether or when they intend to move the Senate-passed bill or a similar measure (H.R. 684) introduced in February by Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif. For its part, the White House on April 22 released a statement of Administration Policy ("SAP") supporting the provisions in the Senate bill. The SAP notes the legislation "would eliminate the unfair advantage currently enjoyed by big out-of-state online companies over local neighborhood-based small businesses."

 

In the meantime remote sellers and buyers alike may want to consider whether their billing systems, purchasing systems, sales tax policies, and compliance procedures are current and adaptable in the event of a possible federal law that requires remote sellers to collect tax. Such considerations may include review of the taxability of their revenue streams and purchases, potential for automation of sales tax billed or use tax calculated, and potential for outsourcing of sales tax compliance.

The problem is that more than 15,000 taxing jurisdictions across the nation are in a constant state of flux. In one month alone last year, taxing authorities in 26 states made 257 changes to their sales tax rates and rules. All this has grown to make sales tax compliance which is a tough job, even harder.

BPB helps clients manage these challenges. 

Florida Manufacturing Machinery and Equipment Exemption Approved

 

Florida expands Manufacturing Machinery and Equipment Exemption

House Bill 391 was approved by the Economic Development and Tourism Subcommittee to expand the sales tax exemption for the purchase of machinery and equipment. The exemption would apply to all manufactuer' machinery and equipment purchases not just machinery and equipment for new business or companies who can show new equipment increased produciton by five percent. 

 

Urgent: Fiscal Cliff Provides 15 Month WOTC Credit Look Back (April 29, 2013 Deadline)

A very important note regarding the Work Opportunity tax credit. If you are not already claiming these credits, you have time to claim them in arrears through the end of April!

Have you claimed  “WOTC” (Work Opportunity Tax Credits) for 2012?” 

Normally, employers have merely 28 days to claim their credits for recently hired qualified employees. 

Due to the recent ”fiscal cliff” deal by Congress and the President, however, the IRS is now providing a 15-month look back opportunity to claim these credits. 

WOTC can reduce an employer’s federal income tax liability by as much as $9,600 per employee hired.

Additionally, there is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.

Even tax-exempt organizations can take advantage of WOTC by hiring eligible veterans and receiving a credit against the employer’s share of Social Security taxes.  

Eligible employees include:

Veterans

• Disabled persons
• Food stamp recipients
• Long-term Temporary Assistance for Needy Family Recipient
• Short-Term Temporary Assistance for Needy Family Recipient
• Designated Community Resident
• Ex-felon
• Supplemental Security Income Recipient
• Summer Youth Employee

Employers may receive from $1,200 to $9,600. per eligible employee, depending on the target group of the new employee.     

The Work Opportunity Tax Credit (“WOTC”) is a federal income tax credit incentive program that was created to promote the hiring of individuals who face significant barriers to employment.  This program was on a prolonged hiatus in 2012 and has affected employer’s hiring and tax planning. 

 How to Apply - we will help you complete federal and state forms to obtain tax credit and we will deal with federal and state agencies to ensure that your company receives federal income tax credit that You Are Entitled To for all of your eligible employees.

Time is running out!  The deadline to submit claim requests is this coming April 29, 2013.
Please contact me at 305.960.1202 for more information on how we can assist you with meeting this deadline.

 

Florida - Reminder Estmated Payment Due June 28, 2013

The accelerated income tax estimated payment due on June 30, 2013 must be paid by June 28 2013. HB 5701 (signed Apr. 20, 2012

Nebraska: Update on Pending Tax Legislation

Nebraska Governor Heineman recently announced proposals to overhaul the Nebraska tax structure.
The proposals generally focused on reducing or eliminating the corporate and personal income taxes as well as eliminating certain sales tax exemptions. The proposals were formalized in two bills introduced in the Nebraska legislature in late January, LB 405 and LB 406.

On Saturday, February 16, 2013, Governor Heineman held a press conference where he stated that he has asked the tax policy committee to kill both bills so as to start a new and more inclusive discussion regarding Nebraska tax reform.