Federal Legislation Introduced in Both Houses of the US Congress
A plan to close the Internet sales-tax loophole in Michigan is inviting praises from storefront businesses but raising some concerns among some legislators about possible "unintended consequences."
In my Thursday October 13, 2011 Blog, I reported on the Click-Through and Affiliate Nexus Bills Introduced In The Michigan Legislature. The bills introduced in the Michigan House of Representatives would amend the Sales Tax Act and the Use Tax Act.
House Bill 5004 would amend the sales tax act and House Bill 5005 would amend the use tax act. Both bills contain both affiliate and click-through nexus provisions relating to the sales and use tax collection responsibilities of remote sellers. Both bills have been introduced in the Michigan House of Representatives.
The bills would amend the definition of a person engaging in business in the state by including a seller with an "affiliated person" that has a physical location in the state, conducts business in the state, or is subject to the Michigan sales or use tax, and directly or indirectly, does any of the following:
· sells a similar line of products as the seller, under the same or similar business name;
· uses its employees or facilities in the state to advertise and promote sales by the seller;
· maintains an office, distribution facility, or other similar place of business to deliver tangible personal property sold by the seller to customers in Michigan;
· uses trademarks or service marks that are similar to those used by the seller;
· delivers, installs, assembles, or performs maintenance or repair services for the seller's customers;
· allows the seller's customers to pick up or return tangible personal property sold by the seller at a distribution facility or other similar place of business maintained by the affiliated person; or
· performs any other activities associated with the seller's ability to establish or maintain a market in Michigan.
The click-through provisions provide that a seller is engaged in business in the state if it enters into an agreement with one or more Michigan residents under which the resident, for a commission or other consideration, directly or indirectly, refers potential customers, whether by a link on an Internet website, in-person oral presentation, or otherwise, to the seller. The cumulative gross receipts from sales by the seller to customers who are referred to the seller by residents with an agreement with the seller must be greater than $10,000 during the immediately preceding 12 months.
The presumption of nexus, from the activities of an affiliated person or the sales from resident referrals, can be rebutted by showing that the affiliated person or the state residents with whom the seller has an agreement did not engage in solicitation or any other activity related to the seller's ability to establish or maintain a market in the state.
The House Tax Policy Committee heard testimony on Wednesday October 12th on the "Michigan Main Street Fairness Act" which would close the sales-tax loophole by moving online-only retailers under the same sales-tax collection laws as brick-and-mortar businesses.
Online retail is a $250 billion industry and growing. The bill are aimed at helping small businesses compete with online retailers, whose products may seem cheaper because they do not have to charge sales tax. That appears to be a big savings when people are shopping for high-price items like cameras or jewelry.
"In the end, the consumer is left exposed with an online tax liability," said Jim HALLAN, CEO and President of the Michigan Retailers Association. "Many consumers do not know it is their responsibility to track and remit the tax for purchases over the Internet. They could be subject to an audit for failing to do so."
Representative Jeffrey Farrington or Utica voiced concerns about changing the definition of nexus in general. "I am a little concerned about the unintended consequences," Farrington said. "Once you move away from the physical definition of nexus . it becomes something esoteric and pretty much however you want to define it."
Representative Mark Meadows of East Lansing questioned how the bills would impact the federal legislation introduced in the US Congress which is under consideration to unify and simplify tax codes. Meadows said the committee should consider supporting the federal legislation in a resolution.
The U.S. House Bill Would Mandate Collection by Remote Sellers
Sellers would be required to collect sales and use tax for states in which they lack a physical-presence nexus, under legislation introduced in the U.S. House of Representatives on October 13, 2011. The Marketplace Equity Act of 2011 (H.R. 3179) was introduced by Representatives Steve Womack of Arkansas and Jackie Speier of california, along with other cosponsors. It has been referred to the House Judiciary Committee. H.R. 3179 mirrors proposals by the Retail Industry Leaders Association.
Unlike the Main Street Fairness Act, which was introduced in Congress on July 29, 2011 by Illinois Senator Richard Durbin of Illinois, the new legislation would not require a state to conform to the Streamlined Sales and Use Tax (SST) Agreement in order to receive collection authority. Rather, a state would be authorized to require remote sellers to collect tax for sales into that state, so long as state law provides the following minimum simplifications:
· a small-seller exception for remote sellers with gross annual receipts nationwide of $1 million or less, or in the state of $100,000 or less;
· a single tax return for use by remote sellers and a single authority in the state with which the return must be filed;
· an identical tax base and exemptions throughout the state for remote sellers; and
· a rate structure for remote sellers.
The three acceptable rate structures for remote sellers would be the following:
· a single statewide blended rate that includes both the state rate and local rates;
· the maximum state rate, exclusive of tax imposed by or for local jurisdictions; and
· the destination rate, which would be the sum of the state rate and the local rate of the location into which the sale is made.
The rates for the first two structures could not exceed the average rates applicable to non-remote sellers. A state that requires the destination rate would be required to make available software that eases the burden of collecting at multiple rates and provide liability relief for errors in the information provided. A state that imposes a lower rate for sales of food or drugs and medicine could require remote sellers to collect tax at those rates.