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S.F. No. 2374 - Modifying requirements for collecting sales tax (as proposed to be amended by A-2)
 
Author: Senator Ann H. Rest
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: April 4, 2016



 

This bill expands nexus for purposes of triggering collection and remittance of sales tax for remote sales transactions.  The bill also modifies collection, remittance and reporting requirements for certain sellers and agents of sellers.  Effective for sales and purchases made after June 30, 2016.

Section

Provision

1

Modifies the definition of a “retailer maintaining a place of business in the state” to include having storage facility in the state, employing a state resident who works from a home office in the state, or having a marketplace provider, referrer, or other third party operating in the state under the retailer’s authority to facilitate or process sales in the state.
 

2

Modifies the criteria by which a retailer not maintaining a place of business in the state is required to collect and remit sales taxes:

  • engaging in direct response marketing in the state, which includes:
  • transmitting mail, flyers, or other messages, including through social media;
  • collecting and using data on purchasers or potential purchasers in the state; or
  • any other activity that uses persons, tangible property, digital files or information, or software in the state to enhance the probability that the contact will result in a sale to the customer in the state;
  • conducting any part of the process of the sale in the state; or
  • offering its products through a marketplace operated by a marketplace provider who is required to collect and remit sales and use taxes in the state. 

3

Modifies the definition of “affiliated entities.” A retailer having an in-state affiliate is required to collect and remit sales tax.  Adds criteria by which an affiliate entity is deemed to be a related party to the retailer to include:

  • selling taxable products that are the same as or similar to the retailer or selling under the same or similar name;
  • maintaining a facility such as an office, warehouse, distribution center, or the like to facilitate sales in the state made by the out-of-state retailer;
  • using intellectual property with consent or knowledge that is the same or similar to the out-of-state retailer’s intellectual property;
  • delivering, installing, assembling, performing maintenance or repair services on tangible personal property in the state if the property is sold to in-state customers by the out-of-state retailer;
  • facilitating delivery of tangible personal property to in-state customers by allowing a customer to pick up the property at a facility in the state; or
  • sharing information systems or employees with, or engaging in intercompany transactions with the out-of-state retailer.

Also deems two entities as related parties if the entities are related taxpayers under the Internal Revenue Code for purposes of certain disallowed deductions, or if the transactions are disallowed losses between partnerships and their owners under the Code.

Entities that have one or more ownership relationships designed with the purpose of avoiding establishment of affiliate nexus would also be deemed related parties.
 

4

Establishes definitions for “marketplace provider” and “marketplace seller.”  A marketplace provider is any person who facilitates a retail sale by a seller, which includes:

  • listing or advertising taxable items or services for sale in any forum; and
  • collecting payment from a customer and transmitting the payment to the seller, regardless of whether the marketplace provider is compensated for its services.

A marketplace seller is any seller that has sales facilitated by a marketplace provider.  A seller is presumed to have a marketplace provider in the state if the seller enters into an agreement with the in-state marketplace provider for purposes of facilitating sales, and the seller’s gross receipts are at least $10,000 in the most recent 12-month period.
 

 

5

Establishes collection and remittance requirements for marketplace sellers and marketplace providers.  Marketplace providers are required to collect and remit sales and use tax under provisions in existing law, except when a marketplace seller for whom the marketplace facilitates a sale either:

  • provides a copy of its registration to collect and remit sales and use tax to the marketplace provider before the marketplace provider facilitates the sale; or
  • the marketplace seller appears on a list published by the Department of Revenue of the entities registered to collect and remit sales and use taxes in the state.

Requires the commissioner to promulgate regulations regarding the list.  Relieves a marketplace provider of liability to collect and remit sales and use taxes, in most cases, to the extent that the provider demonstrates that failure to collect and remit was due to incorrect or insufficient information provided by the marketplace seller.
 

6

Establishes a definition of “referrer.”  A referrer is a person who contracts or otherwise agrees with a seller to list taxable items or services for sale on any forum, receives a fee or commission for those services, and transfers the customer to the seller’s website to complete the purchase but does not collect a receipt from the customer for the transaction.

Requires referrers to register with the Department of Revenue if the referrer received more than $10,000 in compensation for its services from all sellers in the most recent 12-month period, or received more than $7,500 in compensation for its services from all sellers in the first three quarters of the calendar year.  The registration constitutes an application for a permit for the referrer to provide its services in the state. 

Requires referrers required to register with the department to annually file a report indicating the name and address of the sellers with whom the referrer contracted and, if available, the gross receipts and transactional detail including the number of referrals made to a seller for items sold, and the number of potential customers referred to the seller and who made purchase after a referral, but not any information that would identify purchasers. The referrer is not required to file the report if the seller provides a copy of its sales tax permit or appears on a list of sales tax permit holders published by the department, or if the referrer is a marketplace provider that collects and remits sales and use taxes.

Referrers are also required to provide notice to each seller with whom it has an agreement that the seller may be liable for collecting and remitting sales and use tax and that the referrer is required to provide seller information to the Department of Revenue. 

A referrer who does not obtain a permit is prohibited from referring customers in the state to any seller and is liable for sales and use taxes payable by the seller unless the seller has provided a copy of its sales tax permit or appears on a list of sales tax permit holders published by the department.
 

7

Provides that if any provision of the bill is held invalid, the remaining provisions not affected by the invalid provision remain effective.

 
 
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