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Technology and Life Sciences: A New Requirement? Collecting Sales Tax On Internet Sales


6/4/13

Synopsis:

The US Senate approved a bill that, if certain conditions are met, would allow states to impose sales tax collection requirements on out-of-state vendors. The bill now moves to the House of Representatives for further consideration.

Issue:

If enacted, The Marketplace Fairness Act of 2013 (the “Act”) would provide state governments with the authority to require out of state sellers (“remote sellers”) that make remote sales into a state to collect sales tax, provided certain requirements are met. A remote sale is defined in the Act as“a sale into a state in which the seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by this Act.”Remote sales include sales of goods that are shipped into states where the remote seller has no physical presence (including internet, mail order, and other remote sales). The Act requires remote sellers to collect tax in the same manner as sellers that are physically located in a state. Remote sellers with $1,000,000 or less in annual gross receipts from remote sales are exempt from the collection requirement.
 
States that are full members of the Streamlined Sales and Use Tax Agreement (“SST”) automatically have this authority. The list of full SST members may be found here. States that are not full SST members would be required to implement simplification requirements, including:

  • Creating a single entity to manage all sales tax administration, audits and filings for remote sellers
  • Providing remote sellers with a uniform tax base for the state and any local jurisdiction (counties and cities) sales tax that may apply
  • Providing remote sellers with information on taxable transactions, exemptions, and a database containing tax rates and boundaries
  • Providing free software that calculates sales and use tax due on each transaction and files required sales and use tax returns
     

Local jurisdictions may not require remote sellers to submit sales tax returns outside of these procedures. Additionally, filing requirements imposed by the state must be the same for remote sellers and non-remote sellers.
 
The Act also includes rules for software providers to qualify for participation in this program.

When Must Remote Sellers Begin Collecting Sales Tax?

If a state is a full member of the SST, that state can require remote sellers to collect tax on the first day of the calendar quarter that is at least 90 days after the bill is enacted. If the state is not a full member of the SST, the state can require remote sellers to collect tax beginning on the first day of the calendar quarter that is at least 6 months after the bill is enacted and the state enacts the required simplification provisions.


What Does CohnReznick Think?

If enacted, this, or any other “remote seller” provision, will have wide ranging implications for businesses making remote sales. Prominent members of the House of Representatives have suggested their lack of support for the measure if introduced. While it is unclear whether this or any other remote seller provision will be enacted into law, remote sellers should review their operations, current and future business plans, and IT infrastructure to determine what they may need to do to prepare for compliance with remote seller provisions.


Contact:

For more information, please contact Patrick Duffany, Partner and National Director of State and Local Tax Services, at 860-368-3607 or Alex Castelli, Partner and Technology and Life Sciences Industry Practice Leader at 703-744-6700.

To learn more about CohnReznick’s technology and life sciences services, please visit our webpage.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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