Tag Archives: massachusetts

States Continue to Push for Remote Seller Sales Tax Collection

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Despite being at odds with the “physical presence” test established by the U.S. Supreme Court in Quill Corporation v. North Dakota, states are continuing to enact legislation requiring certain “remote sellers” to collect sales tax on in-state sales. The newest states to join the “kill Quill” movement are Maine and Ohio, who both enacted legislation in June. This type of legislation is being used as a push for the U.S. Supreme Court to reconsider the physical presence rule, which has been in effect since 1992.

Similar to rules adopted in other states over the past two years, the new legislation in Maine and Ohio requires out-of-state sellers who meet a certain sales threshold to register with the state and begin collecting sales tax, despite the sellers having no in-state presence. Ohio’s law H.B. 49 was signed by the governor on June 30, 2017 and sets the annual sales threshold at $500,000. The law will officially go into effect on January 1, 2018. Maine’s new law requires sellers with more than $100,000 of prior year in-state sales to register for sales tax collection beginning on October 1, 2017. Regardless of the value of in-state sales, Maine’s law will also require remote sellers to collect the state’s sales tax if they had at least 200 separate taxable sales delivered to Maine in the prior year.

Maine’s law, similar to legislation enacted in South Dakota last year, provides for a fast-track judicial review. This means that the state can bring a declaratory judgement action against a taxpayer prior to the issuance of an assessment or audit. All appeals will go straight to the state supreme court. In South Dakota, a trial court ruled in favor of the remote sellers during a fast-track judicial review because they lacked physical presence in the state, a requirement established under Quill.  In March, the state filed an appeal of the trial court’s decision with the state supreme court.

In addition to Maine, Ohio, and South Dakota, similar “remote seller” sales tax collection rules have already been established in Alabama, Massachusetts, Tennessee, Vermont, and Wyoming. Massachusetts recently revoked their administrative directive in favor of more formally adopted regulations. With a growing number of states implementing remote seller provisions, and South Dakota already set to address the constitutionality issue in its highest court, it seems prudent for the U.S. Supreme Court to step in and end what is an uncertain environment for retailer’s torn between complying with these rules or hanging their hat on Quill. With Justice Kennedy already stating in his concurring opinion in Direct Marketing Association v. Brohl that “the legal system should find an appropriate case for th[e] Court to reexamine Quill,” it seems like only a matter of time before the “kill Quill” movement achieves its goal of having the physical presence test reevaluated.

If you have any questions regarding your sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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Massachusetts Says In-State Apps and Cookies are a Physical Presence

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Massachusetts has joined the growing number of states that have implemented a sales tax collection obligation for out-of-state retailers. On April 3, 2017, the Massachusetts Department of Revenue issued a directive announcing that the Department is adopting an “administrative bright-line rule” for sales tax collection requirements for Internet vendors (Directive 17-1). Effective July 1, 2017, an Internet vendor with a principal place of business located outside of Massachusetts is required to collect the state’s sales tax if it had in excess of $500,000 in Massachusetts sales or 100 or more transactions with Massachusetts customers in the preceding 12 months.

On its face, the Directive appears to continue the trend of requiring remote sellers to collect sales tax merely due to a certain threshold of in-state sales being met. Besides Massachusetts, the most recent state to adopt a bright-line “economic nexus” standard for sales tax collection is Wyoming, where Gov. Matt Mead signed a bill establishing a sales tax collection threshold of $100,000 of annual sales or more than 200 sales to Wyoming customers. Similar rules have been passed in Alabama, South Dakota, and Tennessee, with the South Dakota rule likely headed to the state’s highest court.

However, Massachusetts’ strategy appears to be slightly different from the others states. Legislation passed in the other states require sales tax collection by retailers with no in-state physical presence, which is clearly at odds with the nexus standard established by the U.S. Supreme Court in the 1992 case of Quill Corporation v. North Dakota. The presumed strategy of the states enacting such provisions is to have the issue taken up by the courts in light of the failed attempts by Congress to address the issue through federal legislation.

Rather than attacking Quill head on, Massachusetts is attempting to distinguish what constitutes a physical presence for a mail order retailer as opposed to an Internet retailer. The ruling in Quill addressed the sales tax collection obligation of a mail order retailer, and concluded that the court’s bright-line “physical presence” standard was not met by a retailer whose only connection with customers in a taxing state is by common carrier or the United States mail. The Massachusetts Directive reasons that the business activities of Internet retailers are factually distinguishable from the business of mail order retailers because Internet retailers do not limit their contacts with the state to mail and common carriers. The directive concludes that Internet retailers have a physical presence in Massachusetts because (1) retailer-owned software is affirmatively downloaded through the use of “native” or “mobile” apps or downloaded by a customer’s general use of the retailer’s website; and (2) retailer-owner proprietary cookies are placed on their customers’ computers and devices.

The troubling nature of the Directive is it seems to ignore that the Quill decision concluded that a sufficient physical presence was not established through mailings made into the state that were owned by the retailers. The in-state mailings did establish some existence of a physical presence for the mail order retailer, but it was not sufficient in the eyes of the Court.  Any software and cookies that are downloaded by an in-state customer seemingly serve the same purpose as a mailed catalog. The analogous nature of mailed catalogs and downloaded software arguably should result in the same non-sufficient physical presence as concluded in Quill. Whether online retailers abide by this directive is yet to be seen. If the developments in other states are any indication, the issue of remote seller sales tax collection could very well be litigated in Massachusetts in the near future. It seems that it is only a matter of time before the U.S. Supreme Court will be forced to address the issue again.

If you have any questions regarding your sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

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2016 Tax Return Due Date Changes: Start Planning Now

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Are you aware of the 2016 tax return due date changes for certain federal and state income tax returns? The changes will have the greatest impact on flow-through entities including S corporations and partnerships, as well as C corporations. Individual income tax return due dates are not impacted. The legislation signed into law by President Obama last year, also known as the Highway Act (P.L. 114-41), generally affects returns with tax years beginning after December 31, 2015. For your convenience, the Aronson tax team has summarized the changes below.

Partnerships

Partnership return due dates have shifted from April 15, to March 15, or the fifteenth day of the third month after a fiscal year-end. This should facilitate timely preparation of Schedule K-1s for individuals and organizational owners or partners whose returns are due on April 15. S corporation income tax returns will remain due on March 15.

C Corporations

Corporate taxpayers’ income tax return is now due on April 15, a month later than the previous March 15, deadline. Corporate income tax returns for fiscal year taxpayers will be due on or before the fifteenth day of the third month following the close of the fiscal year. Certain exceptions apply to C corporations with taxable years ending on June 30.

State Income Tax Returns

Most states have changed their rules to conform to the federal due date modifications, or have existing due dates that do not require changing the rules in order to conform. There are a handful of states that have not conformed to the new federal C corporation return due dates. Notably, Illinois and Massachusetts still have a March 15, deadline for C corporations. Aronson is actively monitoring developments in these jurisdictions and will issue an update early next year.

Other Important Due Date Changes

Other federal due date changes from the Highway Act include:

  • Foreign Bank and Financial Accounts Report (FBAR) Filings (FinCen Form 114) – the original due date moves up to April 15, from June 30, and extensions are allowed to October 15.
  • Not-For-Profit Filings (Form 990) – the original due date remains May 15, but a new single extension is available to November 15. Moving forward, there is no need to file two extensions to get the full extension period.
  • Employee Benefit Plan Filings (Form 5500) – the original due date remains July 31. The extended due date changes to November 15, from the previous extended due date of October 15.

Adjusting to the new deadlines may be a challenge for some taxpayers. Please feel free to contact Grant Patterson, Michael L. Colavito, Jr., or your Aronson tax advisor at 301.231.6200, if you have any questions or concerns related to these changes.

 

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