Sales Tax & VAT Newsletter A Quarterly Publication of ADP’s Tax & Government Affairs Division ISSUE 1/VOLUME 1 MAY 2011 ADP Extends its Sales In this issue: and Use Tax Outsourced • Welcome to our first issue! Returns Solution Our enhanced Outsourced Returns • Affiliate Nexus: The Next Front in the State Battle Solution now interfaces with any to Tax Remote Sales tax collection system and reduces By Charles Collins the burden associated with time- • Transaction Tax News from United States consuming tax filing processes. This powerful solution helps reduce • All EU-VATs Are Not the Same, and That’s OK operating risk and compliance By Richard Ainsworth costs, while freeing up resources • Transaction Tax News from Around the World for more mission critical tasks. • Sales Tax Holidays in the U.S. and Canada For additional details, please By Joan Howard see our press release: http://www.adp.com/media/press- • Tax Oddities Around the World releases/2011-news-releases/adp- extends-its-sales-and-use-tax-outso urced-returns-solution.aspx. Welcome to our first issue! Welcome to the first edition of the ADP Sales, Use and VAT Tax Solutions newsletter. In each issue, we will provide in-depth articles discussing topical issues in transaction tax, both in the US and globally. In addition, we will provide short summaries of some of the most important legal and regulatory changes in tax laws that have taken place over the past quarter. Our goal is to provide immediately useful information to transaction tax professionals while highlighting the interesting, challenging and sometimes comical application of these taxes. We hope you enjoy the newsletter. Please share it with all your colleagues! Matthew Walsh Senior Director of Tax and Operations ADP Sales, Use and VAT Solutions ADP SALES TAX & VAT NEWSLETTER 2 Affiliate Nexus: The Next Front in the State Battle to Tax Remote Sales States’ efforts to increase compliance with their use tax laws are not new. States have historically educated, audited and legislated to collect more use tax. While states have increased collection of use tax, the growth of internet sales, and the continued inability of states to require remote sellers to collect the tax without a physical presence, has pushed the revenue loss from individual purchasers to an estimated $18B for 2012.* During the past twelve months, states have refocused their legislative efforts to make it more difficult for remote sellers to ship products into their states without collecting tax. This increased focus should not be unexpected, as many state governments continue to deal with budget shortfalls. Simultaneously, instate sellers complain of being at a competitive disadvantage to remote sellers who are not collecting the tax. Charles Collins is Vice President of Government Legislation expanding nexus requirements has been enacted in New York, North Carolina and Rhode Island. These laws make the use of an instate affiliate Affairs at ADP. Prior to joining directing sales to an out of state remote sellers’ website a nexus, creating ADP, he spent 32 years activity for the out of state seller. This affiliate nexus is often referred to as with the North Carolina “click-through-nexus.” Other states have enacted special reporting or notice Department of Revenue. requirements on remote sellers, requiring them to inform the purchaser of He was Co-Chair of the their responsibility to self report the tax, and, in some states, a requirement on Streamlined Sales Tax the remote seller to provide the state a customer list of purchases shipped into Projects (SSTP) for two and a their state. half years, coordinated the During this legislative session, affiliate nexus, notice or reporting legislation is SSTP pilot project, and was very popular. Legislation has been introduced in sixteen states and has already also a delegate to the SST been enacted in Illinois and South Dakota. Remote sellers have contested the Implementing States. affiliate nexus laws and suits are pending in some states. Remote sellers have also severed ties with their instate affiliates in some states while they seek a judicial resolution. According to published reports, states and main street retailers are continuing to push federal legislation to require remote sellers without a physical presence to During the past twelve collect sales and use tax. Although a bill has not been introduced, it is expected at any time. months, states appear to Internet sellers and other remote sellers should continue to monitor developments have refocused their efforts in the affiliate nexus and reporting areas at the state and federal level. Reserves legislatively to make it more may be necessary if a law change or court decision alters the current law. Failure to monitor the situation closely could put businesses in a non-compliant position. difficult for remote sellers to ship products into states without collecting tax. * State and Local Government Sales Tax Revenue Losses From Electronic Commerce by Donald Bruce, William Fox & LeAnn Luna, University of Tennessee, April 2009 ADP SALES TAX & VAT NEWSLETTER 3 Transaction Tax News from the United States ALABAMA GEORGIA With a complex scheme of special rates applicable The state of Georgia became an associate to general rentals, linen rentals, motor vehicle member of Streamlined Sales Tax (SST) on rentals, manufacturing transaction, and agricultural January 1, 2011. As part of its SST legislation, sales, local rate changes in Alabama are generally Georgia implemented a number of law changes. far from newsworthy. However, a rate change in Most notably, the special local rates on food that Rainsville, AL (approximate population 4,500) applied in DeKalb, Muscogee, Rockdale, Taliaferro effective April 1, 2011 caught our attention. In and Webster Counties no longer apply. Food is implementing a new use tax rate, Rainsville decided now exempt at the state level and taxable at to make their agricultural and manufacturing use standard local rates. tax rates higher than the applicable sales tax rates , presenting a rather obvious constitutional concern. KANSAS Kansas was one of a number of states that COLORADO initially changed their local sourcing rules to In Colorado, the rules relating to the taxability of become compliant with the then existing software have been adjusted repeatedly over the Streamlined Sales Tax requirement of destination last few years. Current proposed legislation would sourcing. However, based upon a change in the reinstate, effective July 1, 2012 the significant SSTP requirements, Kansas is now debating a software exemption that was rescinded on May 1, legislative measure that would allow vendors 2010 in response to a server budget shortfall. to choose their sourcing methodology. CONNECTICUT LOUISIANA The state’s legislature debated and the governor The Louisiana Department of Revenue temporarily signed into law bill SB 1239 that approved an suspended the effectiveness of two important overhaul reform of the states tax system. Among Policy Statements pertaining to the taxability of the changes approved are: the elimination of digital products and certain pay-per-view and multiple sales tax exemptions for goods and on-demand video services. The absence of services; an increase of the state sales tax rate these rules has created significant uncertainty to 6.35%; an increase of the hotel tax to 15%; the surrounding the taxability of these items. enactment and/or increase of excise taxes However, Louisiana has established a Working applicable to boats, clothing, jewelry, motor Group specifically tasked with bringing some vehicles and others, as well the requirement to clarity to this area. certain remote sellers with no physical presence in the state to collect the state sales tax. Other MASSACHUSETTS tax changes include the modification of personal As a result of a voter initiative, Massachusetts and corporate income tax for the state. The has repealed its recently enacted sales tax on majority of sales and excise taxes change alcoholic beverages. become effective July 1 st , 2011. ADP SALES TAX & VAT NEWSLETTER 4 MISSISSIPPI UTAH As it stands today, Tupelo is the only locality in Mississippi The Utah House has approved HB 35. If passed by the that imposes a sales tax. However, recently enacted SB senate and signed into law, the bill would significantly 2839 authorizes the city ofJackson to enact a 1% municipal change the taxability of products transferred electronically. sales tax if they so approve in a local election. VERMONT NEVADA There are bills pending that would reduce the state’s Aside from considering an expansion of their sales tax to sales tax rate from 6% to 4.5%, and extend that cover additional services, Nevada is also evaluating a tax to apply to candy and to a substantial number bill that would make water subject to tax. of services. NEW YORK WEST VIRGINIA Effective April 1, 2011 the State of New York enacted an The state legislature approved a reduction to the tax rate exemption for the sale of clothing priced at $55 or less. applicable to food for home consumption from 3% to 2% This threshold applies to both the state level tax and the effective January 1, 2012. MCTD (Metropolitan Commuter Transportation District) tax. This replaces, at least temporarily, the $110 exemption OTHER NEWS: that was eliminated last year. Interestingly, the $55 Affiliate Nexus Laws: States considering legislation threshold applies to the MCTD tax in all counties that aimed at requiring on-line retailers to collect and impose the district tax. Under the old rules, the threshold remit tax include: Arizona, Arkansas, California, only applied to the MCTD in those counties that adopted Connecticut, Minnesota, New Mexico, Rhode Island, a threshold similar to the state. Tennessee and Vermont. PUERTO RICO Streamlined Sales Tax Agreement: States considering legislation enabling membership into the SST agreement Puerto Rico has implemented a lottery system include: Florida, Hawaii, Massachusetts and Missouri.