Three Multistate Tax Alerts from McDonald Hopkins law firm --
COLUMBUS, Ohio, May 18, 2012 /PRNewswire/ -- McDonald Hopkins issued three Multistate Tax Alerts:
Ohio CAT might apply to airline flight partners
The Commercial Activity Tax (CAT) is an excise tax for the privilege of doing business in Ohio, which is measured by a person's taxable gross receipts. It is our understanding the Ohio Department of Taxation is considering applying the CAT to airline flight partners for their flight activity in Ohio.
The Department has trained more than 70 auditors in auditing for CAT and have been aggressively pursuing audit leads. There is a substantial risk that airline flight partners could be audited.
These businesses should analyze their activity in Ohio to determine what the potential exposure could be if the CAT is applied to them. Businesses will need to consider the impact of the 47 exclusions and the proper situsing of their gross receipts when determining such exposure.
Our Multistate Tax professionals are very experienced with assisting companies in understanding the complicated CAT statutes, rules and information releases and helping quantify potential exposure. Further, our Multistate Tax professionals are very experienced with conducting and defending CAT audits if a business has already been contacted.
Does a business just have to wait to be contacted by the Department?
No, businesses can be proactive in addressing this issue in three ways:
- General Amnesty—Businesses could apply for general amnesty (May 1, 2012 through June 15, 2012, see Multistate Tax Services Alert for more detail) and remit the tax liability for all open years plus one-half of the normal interest (no penalty would apply);
- Voluntary Disclosure—Businesses could apply for a voluntary disclosure agreement and remit the past three years plus full interest (no penalty would apply) [we can assist clients with determining if Amnesty or Voluntary Disclosure is the better option]; or
- Managed Audit—Businesses could request a managed audit from the Department's Audit Division and remit the tax liability plus full interest for the audit period, which is typically two years for registered taxpayers (no penalty would apply). While there is no formal managed audit program for CAT purposes, the Department may be willing to discuss this approach. This type of audit involves the Department and the client planning the audit together and allows the client to complete part of the actual work, which minimizes the involvement of the Department in the audit process. Clients are often more comfortable with this audit approach and feel more in control of the audit.
Click below to read: Ohio CAT and Airline Flight Partners
Remote sellers get reprieve in Colorado
Remote sellers continue to be under attack for the collection of sales tax across the nation in spite of protections afforded under the United States Constitution. Remote sellers include businesses which sell goods and services over the internet or through catalogues. Since our last alert on this topic, Pennsylvania's clarification of sales tax nexus standards spells more trouble for remote sellers, there have been several updates to state laws impacting remote sellers.
A United States District Court in Colorado recently issued a permanent injunction against the Colorado Department of Revenue from imposing strict notice requirements on out-of-state sellers who do not collect sales tax on internet sales in the state. If the notice requirements would have been allowed, an out-of-state seller who did not collect sales tax and had more than $100,000 in total Colorado gross sales for the prior calendar year would have been required to:
- Provide notification informing each customer:
- The remote seller does not collect sales tax in Colorado,
- The purchase is not exempt from sales or use tax merely because it is made over the internet, and
- Colorado requires a consumer to file a sales or use tax return reporting all Colorado purchases which were not taxed and pay tax on those purchases.
- Provide an annual notice to most Colorado purchasers summarizing Colorado purchases for the preceding calendar year, and
- Provide the Colorado Department of Revenue a purchaser's billing and shipping address and the total amount of purchases made during the prior year.
The permanent injunction explained the notice requirements violated the Commerce Clause of the United States Constitution by discriminating against interstate commerce and imposing an undue burden. The notice requirements would have applied to out-of-state remote sellers, while in-state remote sellers would not have similar requirements. Arguably, an in-state remote seller would satisfy the physical presence standards in the state and likely would have been collecting and remitting sales tax to the State of Colorado. Colorado has filed an appeal on the permanent injunction.
The permanent injunction did not address affiliate nexus statutes currently in place in Colorado. Therefore, remote sellers must still consider these statutes when determining the impact of Colorado laws upon their business.
Other states including Oklahoma, South Carolina, South Dakota, Tennessee, and Vermont have adopted notice requirements. The notice requirements adopted in these states are less strict than the requirements determined to be unconstitutional in Colorado, however, remote sellers must determine their proper application. While laws directed at remote sellers continue to be challenged across the nation, state legislatures also continue to propose and enact new legislation.
Georgia aggressively entered the battle against remote sellers by enacting both "click-through" nexus, as well as affiliate nexus statutes.
In Georgia, a remote seller will be presumed to have physical presence using the "click-through" nexus statute if the remote seller enters into an agreement with one or more persons who are residents of Georgia, where the resident refers potential customers to the remote seller by a link on an internet website, an in-person oral presentation, telemarketing, or otherwise, for commission or other consideration. A remote seller must also have more than $50,000 in gross receipts from the agreements with Georgia residents over the last 12 months to satisfy the "click-through" nexus statute. The "click-through" statute enacted by Georgia is fairly similar to other states previously enacting "click-through" nexus. However, Georgia added one nuance by including in-person oral presentations and telemarketing as a source of referral within the presumption.
As part of the same legislation package, Georgia also enacted affiliate nexus. Under the affiliate nexus statutes, an out-of-state remote seller will be presumed to satisfy the physical presence standard, thus being required to collect and remit sales tax, if an in-state affiliate or related member sells a similar line of products and does so under the same or similar business name or uses trademarks, service marks, or trade names in the state that are the same or substantially similar to those used by the remote seller.
The legislation also expressly provides that any ruling, agreement, or contract stating that a remote seller is not required to collect sales tax in the state, despite physical presence is now null and void. Remote sellers who previously had such a ruling, agreement, or contract should consider the impact of the legislation to their business.
Tennessee recently used economic development policies to create an exception to the affiliate nexus standards previously adopted. The legislation provides, in certain circumstances, the activities of a remote seller's affiliates (including the sale of tangible personal property for resale and other non-retail activities) are not considered in determining whether the remote seller has a physical presence in the state, assuming the in-state affiliate meets specific requirements. To be eligible for the legislative "safe-harbor" a remote seller must have an in-state affiliate who:
- Places one or more distribution facilities in service, directly or through a third party in the state after January 1, 2011 and before January 1, 2014;
- Makes a capital investment in the state of at least $350,000,000 after January 1, 2011 and before January 1, 2014;
- Creates at least 3,500 qualified jobs in the state after January 1, 2011 and before January 1, 2014, and
- Maintains at least 3,500 qualified jobs in the state until January 1, 2016.
If a remote seller has an affiliate who satisfies the "safe-harbor," a remote seller may delay the collection of Tennessee sales tax on remote sales until January 1, 2014 or the effective date of a law passed by the United States Congress, whichever is earlier. By using economic development policies, Tennessee is hoping to assist in the creation of at least 3,500 new jobs and also receives an agreement from certain remote sellers to start collecting sales tax on remote sales beginning in 2014.
As part of the legislation package, Tennessee also adopted notice requirements for a remote seller who qualifies under the "safe-harbor." These remote sellers will have to give notice to Tennessee purchasers of remote sales including:
- An initial email confirmation which must provide:
- The purchaser may owe Tennessee use tax on the total purchase,
- The purchase is not exempt from use tax because the sale is made through the internet, and
- An internet link to the Tennessee Department of Revenue website allowing a person to pay the use tax.
- A year-end summary of the total purchases of tangible personal property made by a purchaser during the previous year.
Interestingly, the year-end summary requirements must be completed for the tax year 2011 and every year thereafter. Thus, purchasers in Tennessee who do not have an applicable exemption and have not paid their use tax liability for 2011 should consider making a payment once the year-end summary has been provided. The Tennessee notice requirements will be repealed the earlier of January 1, 2014, when the remote seller's affiliate fails to meet the "safe-harbor," or the effective date of a law enacted by the United States Congress. As discussed above, remote sellers qualifying for this "safe-harbor" will begin to collect sales tax in Tennessee after the repeal.
Virginia also joined in the attack on remote sellers by enacting legislation which creates affiliate nexus standards in the state. In Virginia, an out-of-state remote seller lacking physical presence will be presumed to satisfy the physical presence standard if the remote seller has any commonly controlled person maintaining a distribution center, warehouse, fulfillment center, office, or similar location in the state that facilitates the delivery of tangible personal property sold by the remote seller to its customers. This presumption is rebuttable if a remote seller can demonstrate the activities conducted by the commonly controlled person are not significantly associated with the remote seller's ability to establish or maintain a market in the state. The standards are effective on September 1, 2013 or the effective date of a law passed by the United States Congress, whichever is earlier.
The legislation enacted in Virginia is similar to other states which have previously enacted affiliate nexus statutes. Thus, remote sellers who have affiliates with physical presence in Virginia should consider the proper application of these standards to their individual facts and circumstances.
What remote sellers should do:
All remote sellers should continue to track these national trends and assess their risk for a state asserting physical presence and retroactive tax collection. Often, steps can be taken to mitigate a remote seller's risk of being held liable for collecting sales tax on remote sales. Our Multistate Tax team has experience advising and assisting remote sellers with weighing their risks and identifying opportunities to reduce that risk.
Click below to read: Remote sellers get reprieve in Colorado
Texas offers a fresh start for businesses
The State of Texas announced Project Fresh Start, a tax amnesty program beginning June 12, 2012 and available through August 17, 2012. The program is available for most state and local taxes and fees administered by the Texas Comptroller of Public Accounts, which includes over 60 separate taxes and fees. By successfully completing the program, taxpayers may have interest and penalties waived.
What are the benefits of participation?
Project Fresh Start is a one-time opportunity for businesses who owe the State of Texas taxes or fees to file returns by paying the tax, without interest or penalties being assessed. After the amnesty period is completed, the State of Texas will resume assessing interest and penalties.
Who is eligible?
- Taxpayers who did not file a required return for taxes due before April 1, 2012
- Taxpayers who need to amend a previously filed tax return
What taxes are eligible?
Tax Amnesty is available for over 60 other taxes and fees including sales and use or franchise taxes. However, amnesty is not available for:
- Property taxes
- Public Utility Commission gross receipts assessments
- Sports and community venue taxes
- Unclaimed funds
How to participate
- Follow these three steps by August 17, 2012:
- Determine tax liability
- Complete all required returns
- Remit full payment of tax due
If you are uneasy about this process, including determining which taxes are applicable to your business, we can assist you in evaluating its benefits and risks. We can also work with you to quantify the proper amount of tax and complete the amnesty process.
Do I have other options?
During tax amnesty, taxpayers may still participate in a voluntary disclosure, a program which offers a similar benefit to tax amnesty. Taxpayers should determine which program will provide the greatest benefit based upon their specific facts and circumstances.
Click below to read: Texas offers a fresh start for businesses
For more information, please contact:
John R. Trippier
Adam L. Garn
Thomas M. Zaino
Multistate Tax Services
Our multistate tax practice has experience consulting on all types of state and local tax compliance and controversy matters. Our firm has experience in assisting clients in participating in tax amnesty programs and negotiating voluntary disclosure agreements in states across the nation. We would be happy to assist you in determining the benefits of this program.
About McDonald Hopkins
McDonald Hopkins is a business advisory and advocacy law firm with offices in Chicago, Cleveland, Columbus, Detroit, Miami, and West Palm Beach. The president of McDonald Hopkins is Carl J. Grassi. For more information about McDonald Hopkins, visit www.mcdonaldhopkins.com.
Deborah W. Kelm
McDonald Hopkins LLC
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