Monthly Archives: May 2013

AUGUST 2013 NEWS FROM SULLIVAN & ASSOCIATES, PC

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The dog days of summer are here, and the Fiefdoms are still busy. First, the Amazon sales tax law plague has spread further west, as Missouri has enacted a version of this now oft-mimicked piece of legislation. I doubt they will be the last ones to wade into this cesspool. On a completely different note, Massachusetts recently enacted market based sourcing for corporate income tax along with the dreaded throw-out rule. In addition, Massachusetts will now charge sales tax on a whole bevy of computer services previously not taxed. Interestingly enough, all of these new tax laws were enacted by overriding the veto of the Governor. You don’t see many tax laws get enacted as a result of an override. Could this be the beginning of the return of Taxachussets? It sure does look like it. Have an enjoyable rest of your summer.

Illinois – Sales and Use Tax – Certain Licenses of Software Not Taxable, Even When Reseller Is Involved

The Illinois Department of Revenue has issued a general information letter discussing sales of canned software and the exemption of certain software licenses from sales tax. The release stated that a reseller of software will not be liable for sales tax, where a license agreement exists between the original seller of the software and the customer, provided that the reseller maintains a copy of the signed license agreement in its records and other criteria concerning the license transaction are met. General Information Letter ST 13-0032-GIL.

Illinois – Sales and Use Tax – Payment to Creditors Other Than State Was Willful Failure to Pay

An individual who was a vice president, treasurer, and secretary of a business that failed without paying some Illinois sales and use tax was an admittedly responsible person who willfully failed to pay the tax even though he surrendered the business’s assets and his personal residence to pay off other creditors. The decision to transfer control of all assets of the business before verifying that the company’s tax liability had been paid was deemed to be a conscious and deliberate choice made by the individual and his partner. The choice implicitly entailed a decision to prefer creditors of the state and, therefore, constituted a conscious and deliberate or “willful” decision on their part. Administrative Hearing Decision No. ST 13-05.

Massachusetts – Corporate Income Tax – Market-Based Sourcing and Throw-Out Rule Enacted

The Massachusetts Legislature has overridden the Governor’s veto of a bill that changes the apportionment formula for corporate excise tax purposes to market-based sourcing. Applicable to tax years after 2013, sales, other than sales of tangible personal property, are considered in the state if the corporation’s market for the sale is in the state. Previously, sales, other than sales of tangible personal property, were considered in the state if the income-producing activity was performed in the state and, if the income-producing activity was performed both in and out of the state.

In addition, the state also adopted a throw-out rule by which sales, other than sales of tangible personal property, to a state where the taxpayer is not taxable, or if the location of the sale cannot be determined or reasonably approximated, are excluded from both the numerator and the denominator of the sales factor. H.B. 3581/H.B 3535.

Massachusetts – Sales and Use Tax – Tax on Computer Services Enacted

The Massachusetts Senate and House of Representatives have voted to override a veto from the governor and enact legislation that imposes sales and use tax on computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software, effective July 31, 2013. “Computer system design services” means the planning, consulting, or designing of computer systems that integrate computer hardware, software, or communication technologies and are provided by a vendor or a third party. The tax does not apply to data access, data processing, or information management services. H.B. 3581/H.B 3535.

Missouri – Sales Tax- Amazon Law Adopted

A new law in Missouri contains the now pandemic remote seller affiliate nexus and “click-through” nexus provisions. The new law also states that a vendor is presumed to “engage in business activities” within Missouri for state sales/use tax purposes if any person, other than a common carrier acting in its capacity as such, that has substantial nexus with Missouri:

  • Sells a similar line of products as the vendor and does so under the same or a similar business name;
  • Maintains an office, distribution facility, warehouse, or storage place, or similar place of business in Missouri to facilitate the delivery of property or services sold by the vendor to the vendor’s customers;
  • Delivers, installs, assembles, or performs maintenance services for the vendor’s customers within Missouri;
  • Facilitates the vendor’s delivery of property to customers in Missouri by allowing the vendor’s customers to pick up property sold by the vendor at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Missouri; or
  • Conducts any other activities in Missouri that are significantly associated with the vendor’s

S.B. 23.

New Jersey – Sales Tax – Guidance Issued on Cloud Computing

New Jersey issued a Technical Bulletin addresses the application of the New Jersey Sales and Use Tax to the sale of cloud computing. Cloud computing refers to services that allow a customer to access and use the software of a service provider. Per the release, cloud computing is offered in three product categories: Software as a Service (“SaaS”), Platform as a Service (“PaaS”), and Infrastructure as a Service (“IaaS”). The release lists out the taxability of the various aspects of cloud computing. TB-72.

MAY 2013 NEWS FROM SULLIVAN & ASSOCIATES, PC

Well the Amazon law has spawned a child, and an ugly one at that, The Marketplace Fairness Act. This interesting piece of legislation has been around in one iteration or another for years, and it has now been passed in the United State Senate. There is an old adage in the law, bad facts make bad law. Well in this case, short sighted self-serving Senators make short sighted, unenforceable, unconstitutional, and overburdensome tax law. If this Act passes in the House, and the President signs it, the words quagmire and disaster will take on whole new meanings. The states can’t handle the tax collection responsibilities that they already have and their taxation websites are already labyrinthal and outdated at best. Couple this with the eventual unleashing of various States’ Department of Taxation auditors like locusts across the country, and its going to get ugly. This doesn’t even take into account the timing issue. Do we really think passing this legislation while Obamacare is coming into force and is still a complete unknown is such a good idea? So, I guess burdening small businesses with additional regulatory, collecting, and remitting responsibilities as we pull out of a recession makes sense? Maybe I’m missing something. Have a pleasant May.

The United States Senate Passes The Marketplace Fairness Act, House is Up Next

In a brazen disregard for Constitutional and Supreme Court Law, the Senate has passed the Marketplace Fairness Act. The Act grants States the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction. As a result, remote sellers will now have same tax collection requirements as brick and mortar businesses UNLESS they meet the small seller exception of less than $1 million in remote sales. This law, if passed, will in effect overturn the 1992 US Supreme Court landmark decision in Quill v. North Dakota, 504 U.S. 298(1992), which held that an out of state corporation must have a physical presence in a state before it can be subject to sales tax collection and remittance responsibilities.

Now keep in mind that there is a caveat, states are only granted this authority after they have simplified their sales tax laws. Only some states have undergone this process to date, and those states that have met the prescribed requirements under this Act can start collecting sales tax 90 days after the bill is signed by the President. S. 336.

Alabama – Corporate Income Tax – New Rule Implements Move from “Costs of Performance” to “Market-Sourcing” of Sales Other than Tangible Personal Property

The Alabama Department of Revenue has now finalized a new rule implementing legislation enacted during 2011 regarding Alabama’s corporate income tax apportionment formula, which amended the sales factor sourcing rule for sales other than sales of tangible personal property to reflect Alabama’s move from “greater costs of performance” to “market sourcing” for taxable years beginning on or after December 31, 2010. Al. Rule 810-27-1-.71.01.

Idaho – Sales Tax – New Law Creates Exemption for Cloud Computing as a Service

A new law excludes from the definition of taxable “tangible personal property” application software accessed over the Internet or through wireless media. “Application software accessed over the Internet or through wireless media” means the right to use computer software where the software is accessed over the Internet or through wireless media from a location owned or maintained by the seller or an agent of the seller and is not loaded and left at the user’s location.

The term does not include such remotely accessed computer software if the primary purpose of such computer software is for entertainment use, or if the vendor of that computer software offers for sale, in a storage media or by an electronic download, to the user’s computer or server, and either directly or through wholesale or retail channels, that same computer software or comparable computer software that performs the same functions. H.B. 243.

Kansas – Sales/Use – New Law Provides Remote Seller “Click-Thru” and Affiliate Nexus Provisions

A new law implements “click-thru” and affiliate nexus provisions for Kansas sales/use tax purposes by expanding the definition of a retailer “doing business” in Kansas for state sales/use tax collection purposes to generally include those retailers that enter into certain agreements with Kansas residents, or with in-state affiliates selling similar products, having an in-state physical location/warehouse or employees/agents, using substantially the same trademarks/trade names, and/or conducting in-state activities that are significantly associated with the retailer’s ability to establish and maintain an in-state market.

Qualifying agreements include those entered into with one or more Kansas residents under which the resident, in exchange for some consideration, directly or indirectly refers potential customers from Kansas so long as the cumulative gross receipts stemming from transactions generated by such references exceed $10,000 during the preceding twelve months. These two new “click-thru” and affiliate nexus presumptions may be rebutted if retailers submit sufficient proof that they do not meet the requirements established in the expanded definition. S.B. 83.