On May 24, 2021, the Magistrate Division of the Oregon Tax Court denied a taxpayer’s motions for summary judgment, finding the taxpayer’s claim for refund was filed beyond the statute of limitations.  Specifically, on December 4, 2015, the taxpayer filed its Oregon corporation excise tax return for tax year end February 28, 2015. The taxpayer subsequently filed an amended federal tax return, which the IRS accepted and issued a refund for on January 8, 2019 (without issuing a Revenue Agent’s Report). The taxpayer then filed its amended Oregon corporation excise tax return on February 1, 2019, reporting those same changes.  The taxpayer’s amended return was filed three years, one month and 28 days after the taxpayer’s originally filed Oregon return.

Oregon law generally requires a taxpayer file a refund claim within three years after the original return was filed, pursuant to ORS § 314.415(2)(a). An exception to the general rule is found in ORS § 314.380(2)(b), which provides that a change or correction made by the IRS or another state revenue authority giving rise to a claim for refund will extend the general statute of limitation. ORS § 314.380(2)(c) requires a taxpayer to file an amended Oregon return to report a change in Oregon tax liability based on the filing of an amended federal or other state return; however, that provision makes no reference to a claim a refund.  Considering these provisions, the court concluded that the filing of the taxpayer’s amended Oregon return was governed by ORS § 314.380(2)(c), based on the filing of the federal amended return, and that although the taxpayer filed within the 90 day filing requirement, that provision of ORS § 314.380 does not provide a statute of limitations extension for refund claims. Thus, the court determined that the taxpayer’s claim for refund was bared by the general claim for refund provision (ORS § 314.415(2)(a)) since the taxpayer’s amended Oregon return was filed more than three years after the date its original return was filed.

Bed Bath & Beyond Inc. v. Dep’t of Revenue, TC-MD 200272G, (Or. Tax Ct., Mag. Div., May 24, 2021) (unpublished)

Recent developments for Illinois’ marketplace facilitator tax law.

The Latest

  • June 9the Illinois Department of Revenue issues updated FAQs for marketplace facilitators, marketplace sellers and remote sellers.
  • June 8 – IDOR revises its “Leveling the Playing Field Retailer Flowchart” (PDF).
  • June 3 – IDOR publishes “What’s New in 2021 for Remote Retailers and Marketplace Facilitators PowerPoint Presentation” (PowerPoint).

Illinois’s marketplace collection law at a glance:

Relevant statutes:

  • Retailer’s Occupation Act: 35 ILCS 120/2
  • Service Use Tax Act: 35 ILCS 110/2d
  • Use Tax Act: 35 ILCS 105/2d

Tax collection threshold: $100,000 in sales of tangible personal property or 200 separate transactions for the sale of tangible personal property within the preceding 12-month period. (Includes sales facilitated on behalf of marketplace sellers.)

“Marketplace facilitator” defined: A person who, pursuant to an agreement with an unrelated third-party marketplace seller, directly or indirectly through one or more affiliates facilitates a retail sale by an unrelated third party marketplace seller by:

  1. listing or advertising for sale by the marketplace seller in a marketplace, tangible personal property that is subject to tax under this Act; and
  2. either directly or indirectly, through agreements or arrangements with third parties, collecting payment from the customer and transmitting that payment to the marketplace seller regardless of whether the marketplace facilitator receives compensation or other consideration in exchange for its services.

“Remote retailer” defined: A retailer that does not maintain within this State, directly or by a subsidiary, an office, distribution house, sales house, warehouse or other place of business, or any agent or other representative operating within this State under the authority of the retailer or its subsidiary, irrespective of whether such place of business or agent is located here permanently or temporarily or whether such retailer or subsidiary is licensed to do business in this State.

Background: Marketplace facilitator collection in Illinois

Like most states with a sales tax, Illinois enacted a marketplace facilitator sales tax collection law after the 2018 Wayfair decision. The goal of this law was to “level the playing field” between online and in-store sales by requiring marketplace facilitators and remote retailers to collect sales tax. However, the interaction of Illinois’ unique sales tax system and the collection requirements imposed on digital marketplaces created issues that had to be resolved by a series of “fix” bills and guidance from the IDOR.

Sales Tax in Illinois

Illinois imposes two separate but complementary taxes upon the sale and use of tangible personal property: the Illinois Retailers’ Occupation Tax (ROT) and the Use Tax (UT). Typically, customers pay UT to retailers, who must remit the tax to the Illinois Department of Revenue unless the retailer has already remitted ROT upon the gross receipts from the same sale. If ROT has already been paid on the transaction, then the seller may keep the UT collected from the customer. Therefore, although a single retail sale transaction triggers the imposition of both the ROT and UT on the retailer and customer, only one of the taxes must be remitted to the state. If a retailer does not have nexus with Illinois and therefore lacks ROT or UT obligations, the Illinois customer must pay UT directly to state.

January 2021 Sales Tax Guidance Update

The Illinois Department of Revenue (IDOR) recently issued updated sales tax rules and guidance for remote sellers and marketplace facilitators. The updated rules and guidance reflect changes made by the 2019 “Leveling the Playing Field for Illinois Retail Act” that became effective on January 1, 2021 (Public Act 101-0031 and Public Act 101-0604).

Updated Retailers Occupation Tax (ROT) Rules

The new ROT administrative rules address six categories of retailers with different tax liabilities:

  1. Remote retailers incurring state and local ROT using destination sourcing for sales made to Illinois purchasers;
  2. Marketplace facilitators incurring state and local ROT using destination sourcing for sales made over the marketplace on behalf of marketplace sellers to Illinois purchasers;
  3. Marketplace facilitators incurring state and local ROT using origin sourcing for their own sales that are fulfilled from inventory located in Illinois and incurring state and local ROT using destination sourcing for all other sales of its own;
  4. Out-of-state retailers with a physical presence in Illinois incurring a use tax collection obligation for sales made outside Illinois and shipped or delivered to Illinois purchasers; such retailers also incur state and local ROT using origin sourcing for any sales made in Illinois;
  5. Illinois retailers, including brick and mortar retailers, incurring no state or local ROT for sales made over a marketplace (the marketplace facilitator will now incur state and local ROT liability based on destination sourcing for these sales); and
  6. Illinois retailers, including brick and mortar retailers, incurring state and local ROT based on origin sourcing for sales made in Illinois.

As a result of these differing tax obligations, the IDOR advises that it is critical that retailers examine their selling activities to determine their specific tax liabilities. This is especially important for retailers that engage in multichannel retailing (for example, retailers that engage in selling through their own website, as well as through a marketplace, or Illinois brick and mortar retailers that also sell over a marketplace).

Finally, the scope of the rules is limited to state and local ROT. The rules do not impact the liability of marketplace sellers and remote retailers for other taxes administered by the IDOR or taxes administered by localities.

Destination-based Sales Tax Guidance

On January 4, 2021, the IDOR published a website with technical guidance for remote retailers and marketplace facilitators who must collect destination-based sales tax starting Jan. 1, 2021. The website addresses how these taxpayers can determine tax rates and location codes, add and change locations on a MyTax Illinois account, and properly file Forms ST-1/ST-2.

Threshold Calculation Guidance for Marketplace Facilitators

Illinois Informational Bulletin FY 2021-02-A, provides additional ROT guidance for marketplace facilitators. The guidance advises that for the purposes of calculating the remittance threshold determination for marketplace facilitators, two categories of sales should be excluded:

  • sales for resale, and
  • sales of tangible personal property that is required to be registered with an agency of Illinois, including motor vehicles, watercraft, aircraft, and trailers.

All sales other than these, even if they are exempt from tax, must be included in calculating the tax remittance thresholds. Finally, a marketplace facilitator is considered to be habitually engaged in the selling of tangible personal property and as such, no sales made by a marketplace facilitator are considered to be occasional sales (unlike a remote retailer). Therefore, marketplace facilitators do not have occasional sales to exclude from their tax remittance threshold determination.

Further guidance was provided in Sept. 2020 in Illinois Informational Bulletin FY 2021-2: Retailers’ Occupation Tax Guidance for Remote Retailers as set forth by the Leveling the Playing Field for Illinois Retail Act.

Developments: Illinois’ Marketplace and Remote Seller Collection Laws

  • May 30, 2021the Illinois Legislature passes S.B. 2066, which creates an exemption and retroactive credit for marketplace sellers for transactions in 2020 where tax was paid by the marketplace seller and the marketplace facilitator.
  • Feb. 23, 2021 – Illinois issues responses to Frequently Asked Questions regarding marketplace facilitators, marketplace sellers, and remote retailers.
  • Feb. 1, 2021 – IDOR issues a Compliance Alert on the tax remittance obligations of remote retailers, marketplace sellers, and marketplace facilitators. It concluded that remote retailers and marketplace facilitators must collect and remit state and local ROT administered by the IDOR – including the Chicago Home Rule Municipal Soft Drink ROT. However, marketplace facilitators are not required to collect and remit other (non-ROT) taxes administered by the Department on sales made by marketplace sellers over the marketplace and remote retailers, including the Prepaid Wireless E911 Surcharge, Illinois Telecommunications Access Corporation Assessment, and Tire User Fee.
  • Jan. 1, 2021Illinois issues updated sales tax rules for remote sellers and marketplace facilitators. The updated rules and guidance reflect changes made by the 2019 “Leveling the Playing Field for Illinois Retail Act” that became effective on January 1, 2021.
  • Sept. 18, 2020 – IDOR proposes regulations implementing their remote seller and marketplace facilitator legislation. (PDF) The guidance adds Ill. Admin. Code tit. 86, § 131.101 et seq. to provide updated definitions, explain the determination of remote retailer status, and explain when the gross receipts and separate transaction thresholds are met.
  • May 19, 2020 – IDOR issues proposed regulation 150.804 clarifying the state’s marketplace facilitator legislation (PDF). Under the proposed regulations, a marketplace facilitator must certify to marketplace sellers that it assumes the rights and duties of a retailer for Illinois use tax purposes, must maintain records of its marketplace sellers, and must clearly indicate to sellers that it is listing goods on behalf of a clearly identified seller. The proposed regulations also provide detail and definitions regarding the $100,000 annual revenue or 200 annual transactions thresholds. Finally, the proposed regulation clarifies that the marketplace requirements apply only to use tax obligations and marketplace facilitators are not authorized to remit sales tax obligations (related to orders fulfilled from in-state inventory).
  • Jan. 1, 2020 –Illinois expands nexus to include marketplace facilitators that meet certain thresholds.

More Resources

The New Jersey Tax Court ruled that the in-state activities of an out-of-state wholesale produce distributor were protected under Public Law 86-272 (P.L. 86-272), a federal law that prohibits states from imposing a net income tax on an out-of-state taxpayer.  The Taxpayer had no offices, property, employees or inventory in New Jersey, but it did deliver produce to customers within the state primarily using third-party trucks and took the position that it was not subject to New Jersey Corporation Business Tax (CBT).

The court found that the Taxpayer’s practice of delivering produce to in-state customers and accepting returns of rejected produce upon delivery and prior to acceptance was “ancillary to solicitation of sales” and thus was protected under P.L. 86-272.  The Taxpayer had an obligation under the federal Perishable Agricultural Commodities Act of 1930 to accept the rejected produce before title had transferred to the customer.  However, the Taxpayer’s practice of sending its own trucks into the state to pick-up returned produce after delivery and acceptance by the customer was not protected under P.L. 86-272.  In all but one of the tax years at issue, these activities were de minimis and thus the Taxpayer was not subject to CBT.  For the outlier year, the court held these activities plus the Taxpayer’s practice of sending trucks into the state to obtain produce from a related party constituted “sufficient contacts” in-state that exceeded the protection of P.L. 86-272 and was thus subject to the CBT.

Procacci Bros. Sales Corp. v. Div. of Taxation, N.J. Tax Ct. Dkt. No.  015626-2014 (May 25, 2021)

New York Governor Andrew Cuomo issued a series of executive orders beginning on March 20, 2020, tolling statewide legal filing deadlines from March 20, 2020, to Nov. 3, 2020.

In their column for Bloomberg Tax, Eversheds Sutherland attorneys Michael Hilkin and Jeremy Gove note there is confusion over whether the executive orders apply to filing administrative tax appeals.

Read the full article here.

In this episode of the SALT Shaker Podcast policy series, Carol Portman, President of the Taxpayers’ Federation of Illinois, joins Breen Schiller, Partner in the Chicago office of Eversheds Sutherland, and host Nikki Dobay for a review of the 2021 Illinois legislative session, which adjourned June 1 with the passage of the budget. They begin their discussion with the topic of the restoration of the Illinois franchise tax, which is unlike any other state that has one. They also discuss the Department of Revenue’s frustration the 80-20 definition, despite the recent win in Pepsico at the Tax Tribunal.

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on state and local tax policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

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The Tennessee Department of Revenue recently published Letter Ruling No. 21-05 (dated April 28, 2021) determining that an online marketplace was not a marketplace facilitator responsible for sales tax collection because it did not process payments.  The taxpayer is creating an online platform that allows a network of independent dealers across the country to make business-to-business sales of equipment, manufactured by the taxpayer’s affiliates, that is in the dealer’s inventory.  The taxpayer can charge the dealers for use of the platform, and the taxpayer will also receive a percentage of the dealers’ sales made through the platform. However the taxpayer will not collect payments from the dealers’ customers.  Purchasers pay for their selected inventory in one of two ways: (i) dealer accounts or (ii) by credit card.  The taxpayer’s role with both types of is just communicating the dealer’s preliminary order approval or rejection with the purchaser.

Under Tennessee law, marketplace facilitators are responsible for collecting and remitting sales and use tax on sales made through its marketplace if Tennessee sales exceed $100,000 during the previous 12-month period.  The Department of Revenue found that while the taxpayer was providing an electronic marketplace for the dealers, it was not a marketplace facilitator because the taxpayer only provides the electronic display of the Dealer User’s inventory and communicates the preliminary order approval or rejection, but is not involved in collecting or transmitting the payments.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Explored in a recent SALT Shaker Podcast, which state has recently attempted to extend transfer pricing to sales tax?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

On June 8, the Oregon Senate passed SB 164, which is the 2021 Corporate Activity Tax (CAT) “technical corrections” bill. SB 164 has moved to the House, where it has been referred to the House Revenue Committee. To become law—which is expected—SB 164 will be required to pass out of the House Revenue Committee and the full House before the legislature adjourns later this month.

As passed by the Senate, the A-engrossed version of the bill clarifies that non-Oregon based insurance companies, which are subject to Oregon’s retaliatory tax, are “excluded entities” (for purposes of the CAT) and, thus, not subject to the CAT.  In addition, SB 164 fixes a technical issue that has plagued fiscal year filers since the CAT was enacted in 2019.  If SB 164 is enacted, fiscal year filers will be required file a short year return for 2021 (from 1/1/2021 to the end of a taxpayer’s 2021 fiscal year), and, for 2022, such taxpayers would file using their fiscal year period.  Accordingly, for fiscal year 2022, affected taxpayers’ CAT-filing calendars would mirror their Oregon excise tax return filing calendar.  Lastly, SB 164 would also expand the exclusion for certain receipts of vehicle dealers (all receipts from the new vehicle exchanges between franchised motor vehicle dealerships) and provide a narrow carve out for certain receipts from groceries sold on consignment.