By Jeff Friedman and Stephanie Do

A new landmark sales tax statute has been adopted in Minnesota, which expands sales tax collection requirements to those retailers that sell their goods on certain “marketplaces.” Generally, only a retailer that is physically present in a state is required to collect and remit the state’s sales tax. The US Constitution’s dormant Commerce Clause requires that a person or transaction have “substantial nexus” with a state before the state may impose its sales tax on that person or transaction. Complete Auto Transit v. Brady, 430 U.S. 274 (1977).

In 1992, the US Supreme Court clarified in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that “substantial nexus” only exists when there is a non-trivial physical presence for sales tax purposes. Given the changes in technology and consumer sophistication since Quill was decided, states have been enacting broader sales tax nexus laws in an effort to increase revenues, especially from ecommerce. There also have been various attempts to expand the definition of substantial nexus or what constitutes a physical presence.

In the most recent attempt, Minnesota statutorily expanded its sales tax collection obligation to “marketplace providers” that provide their platforms to retailers to sell their goods. On May 30, 2017, H.F. 1 was passed, which effectively creates a sales tax collection requirement for any retailer that makes sales through a “marketplace provider,” even if the retailer is not actually physically present in Minnesota. The legislation also requires a “marketplace provider” to collect and remit sales tax for the retailer’s sales it facilitates. A “marketplace provider” is defined as “any person who facilitates a retail sale by a retailer” by: (1) listing or advertising sales by the retailer; and (2) collecting payments from the retailer’s customers and transmitting those payments to the retailer.

A marketplace provider is obligated to collect and remit Minnesota sales tax regardless of whether it facilitates payment collection and transmission or whether the marketplace provider is compensated for its services. The marketplace provider is relieved of its collection obligation if the retailer is already registered to collect Minnesota sales tax. There is also a de minimis threshold—if a retailer makes less than $10,000 in taxable sales in the previous year, then there is no collection obligation. The law goes into effect on July 1, 2019, or sooner if the US Supreme Court overturns Quill. Minnesota became the first state to enact this type of law. Other states are quickly joining Minnesota, including Washington, which also extended sales tax collection obligations to marketplace operators on July 7, 2017 (H.B. 2163).

Published in the July edition of the Eversheds Sutherland Global Tax Brief.

On July 25, 2017, the US House of Representatives Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law conducted a hearing on “No Regulation Without Representation: HR 2887 and the Growing Problem of States Regulating Beyond Their Borders.” This hearing was important for several reasons:

  • State tax nexus legislation has been one of the most prevalent tax issues debated by state legislatures in the last few legislative seasons.
  • This legislation would preempt many of the state attempts to expand physical presence nexus.
  • This bill also limits a state’s ability to regulate only those persons who establish a physical presence within the state.

View the full Legal Alert

By Chelsea Marmor and Open Weaver Banks

The Administrative Review and Hearings Division at the Washington Department of Revenue (the Division) determined that administrative activities qualify as business activities for purposes of applying Washington’s throw-out rule under the Washington business and occupation (B&O) tax. The taxpayer, a single member LLC, performed airplane certifications on aircraft worldwide. While the certifications were performed outside of Washington, the taxpayer’s member took calls, arranged scheduling, and managed travel and billing from his home office in Washington. Washington’s throw-out rule excludes gross income from the denominator of the receipts factor if at least some of the activity that generated the gross income was performed in Washington. The taxpayer argued that the activities that generated the gross income were the certifications performed outside of Washington and not the administrative activities performed at the member’s home office. The Division disagreed, determining that the taxpayer performed activities in Washington in support of the taxpayer’s business contracts and, therefore, the throw-out rule exclusion applied to such gross income. Det. No. 16-0226, 36 WTD 344.

Eversheds Sutherland (US) LLP’s SALT Team is a proud sponsor of the Georgetown Law 2017 Advanced State and Local Tax Institute taking place July 27-28, 2017, in Washington, DC. (US) Partner Todd Lard presents, “Digging In: State Perspectives on Federal Tax Reform,” and (US) Partner Jeff Friedman presents, “Match Point: Debate on All Topics SALT.” Eversheds Sutherland hosts and sponsors a welcome reception at our DC office from 6:00 -7:30 p.m. Eastern, on July 26, 2017.

View the full program brochure. An estimated 12.5 CPE credits or 10.75 CLE credits (based on a 60 minute hour) will be available.

View details and register now!

By Chris Beaudro and Carley Roberts

On June 21, 2017, the Maine Legislature overrode the Governor’s veto and passed legislation requiring the collection of sales tax by remote sellers. The legislation requires remote sellers to collect Maine sales tax on their sales into the state if the seller’s gross revenue from sales into Maine exceeds $100,000 or the seller made at least 200 separate sales into the state during the previous or current calendar year. This legislation also contains a somewhat unique provision that allows the state to bring a declaratory action against any person that it believes meets the above requirements to collect tax regardless of whether the state has initiated an audit of that person. The legislation also allows taxpayers that are required to collect sales tax pursuant to the law to deduct and retain 2% of the sales tax collected as a “collection allowance.” With the enactment of this legislation, Maine has joined a growing number of states that have enacted sales tax nexus laws that are directly contrary to the US Supreme Court’s holding in Quill. ME Senate Paper 483.

The Georgia Senate Special Tax Exemption Study Committee held its initial meeting to plan evaluation of Georgia income and sales tax exemptions by December 1, 2017.

  • The special study committee was created by a Georgia Senate Resolution during the 2017 Legislative Session.
  • The Committee will prioritize exemptions to evaluate, and then recommend whether to continue, expand, reduce, or sunset each exemption.
  • The Committee scheduled dates for its next four meetings, which will take place throughout the state.

View the full Legal Alert

Eversheds Sutherland SALT releases the sixth edition of its SALT Scoreboard, a quarterly publication that tracks significant state tax litigation and controversy developments. This edition of the SALT Scoreboard also includes observations regarding beverage tax issues and California’s documentary transfer tax.

View our Eversheds Sutherland SALT Scoreboard results from the second quarter of 2017!

ES SALT Scoreboard Graphic Q2.jpg

Rarely does a subject as mundane as a documentary transfer tax become worthy of its own article. However, the June 29, 2017, decision of the California Supreme Court in 926 North Ardmore Avenue LLC v. County of Los Angeles is a worthy exception. Read this Law360 article by Eversheds Sutherland (US) attorneys Eric Coffill, Robert Merten and Nicholas Kump, which discusses:

  • Three criteria that must be met in order for California’s documentary transfer tax to be imposed
  • Background on the state’s Documentary Transfer Tax Act
  • The California Supreme Court’s ruling in North Ardmore v. County of Los Angeles
  • What’s to come

View the full article

 

On April 6, the Third District California Court of Appeal decided Morning Star Packing Company v. California Air Resources Board, which challenged the state’s cap-and-trade auction process as an unconstitutional tax. View this latest edition of A Pinch of SALT, by Eversheds Sutherland (US) attorneys Eric Coffill and Robert Merten, which discusses:

  • Background on the California cap-and-trade case
  • The Morning Star opinion
  • What’s next?

View the full article

By Charles Capouet and Tim Gustafson

On June 15, 2017, the Maine Supreme Judicial Court held that property tax recovery charges and carrier cost recovery charges imposed by a telecommunications service provider of long distance telephone service on its customers were not subject to service provider tax for the tax years 2008 – 2010. The charges were calculated with reference to revenue from interstate and international telecommunications services and were not collected from customers with only intrastate services. 

As a preliminary matter, the court held that the charges were included within the “sale price” of telecommunications services. Prior to July 18, 2008, Maine excluded the sale price of interstate and international telecommunications services from taxation. Because the charges were only included in the sale price of interstate and international telecommunications services, the charges were also excluded from taxation. Beginning July 18, 2008, Maine instead exempted from service provider tax the “sales of” interstate and international telecommunications services. The court held that the term “sale” is “broader than and inclusive of the price.” Thus, any charge that is part of the sale price of interstate or international services is also part of the sales of those services. As a result, the charges were part of the sales of exempt interstate and international telecommunications services and exempt from service provider tax under the amended statute as well. State Tax Assessor v. MCI Commc’ns Servs., Inc., Dkt. No. Ken-16-358 (Me. June 15, 2017).