MARYLAND: WYNNE CASE UPDATE

On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller's motion for reconsideration in Comptroller v. Wynne, which struck down the state's application of credits against pass through income from S corporations; however, the court stayed implementation of the ruling to allow the comptroller to petition the U.S. Supreme Court for certiorari.

Hence, the ruling is still standing (which was pro-taxpayer), but the effective date is on hold allowing Maryland time to petition the U.S. Supreme Court.

For previous posts on Wynne, go to WYNNE CASE UPDATE.

MARKETPLACE FAIRNESS ACT: THE END OF THE SALES TAX WORLD AS WE KNOW IT

The Marketplace Fairness Act (MFA), if passed, will impose sales/use tax collection obligations on remote retailers.  I was thinking the other day and a few questions or thoughts came to mind that have not been discussed:

1. Will foreign (international) non-U.S. companies be required to collect on remote sales?  If so, how will the states enforce it?  If the states can't enforce it, then doesn't the MFA create an unfair advantage for international companies?  Will the MFA make it more attractive for companies to re-locate outside the U.S.?
2. The MFA will eliminate all nexus questions for sales tax purposes (clarity and bright line).  No more nexus reviews/studies for SALT consultants.  No more litigation regarding what is nexus and what isn't nexus (atleast for sales/use tax purposes).
3. The MFA will eliminate or reduce the amount of use tax exposure companies have because everyone should be collecting sales/use tax on their taxable sales regardless of nexus.
4. How will states enforce this collection obligation on remote retailers?
5. Will all 22 Streamlined Sales Tax Project (SSTP) states go along with it?
6. Will every state simplify their legislation (other than the 22 SSTP states) so they can impose this collection obligation?
7. The strategy of implementing an Internet sales company will be dead (if it wasn't already).  What will be the next strategy for sales tax purposes? 
8. The only thing the MFA doesn't create is uniformity among the states about the taxability of products and services.  Hence, this complexity will still remain.
9. Will someone challenge the MFA on constitutional grounds (due process and commerce clause)?  And if so, who will win?  
10. How much revenue will states actually receive from the MFA and how will it impact their budgets? 
11. Will states tax more products and services since they can ignore the nexus issue? 
12. Or will states be able to reduce the number of products and services they tax due to the increase in revenue they believe they will receive?
13. Will the change in the sales tax nexus/collection standard creep over into the income tax world?

The MFA, if passed, will be a world changer in the sales tax world.  On one hand, all companies will have compliance / set-up issues like never before (unless they meet the small business exemption).  Taxability questions will remain to be complex.  On the other hand, companies will no longer have nexus questions and use tax audit exposure / risk should be reduced.

Will this new world be better?  Does it make sense for our digital and service based economy? 

BRIAN STRAHLE: "SALT CELEBRITY"

Okay, okay.  You can stop laughing now.  Like there is such a thing as a "SALT CELEBRITY." 

In any case, I was recently asked to be interviewed by the Bloomberg BNA SALT blog team to discuss what it is like to write a SALT blog and provide tips for those who might be interested in writing one.

Please go to Expert Insight: Brian Strahle on Blogging, Creativity, and Coping with SALT Celebrity for the full interview.

After reading it, please come back and post your lovely comments here. 

Thank you, thank you, thank you.

MARKETPLACE FAIRNESS ACT: IMPACT ON NON-INTERNET REMOTE RETAILERS?

Everywhere you look, people, the media, etc. are talking about the Marketplace Fairness Act (day after day after day).  Is it fair?  Will it pass the House?  How will it impact business?  Will it change customers buying habits?  Etc.?

Regardless of what opinion you or I may have, we must prepare for the potential enactment. 

I feel like there has been a great deal of discussion about the bill, but who has actually read the bill????

Here is a link to a copy of the bill if you are so inclined - MARKETPLACE FAIRNESS ACT.

COLLECTION OBLIGATION WITHOUT TAXABLE PRESENCE (NEXUS)

If you read the bill, you will begin to understand that the legislation is creating a tax collection obligation on businesses without nexus (or a taxable presence in a state).  The Act clearly states that it does not create any nexus between a person and a state or locality.  Nexus has historically been the basis for when a business had the obligation or requirement to begin to collect sales tax in a state.  Therefore, the Act does not create nexus for an out-of-state company.  The Act only creates a collection obligation.

IMPACT ON NON-INTERNET REMOTE RETAILERS

"Remote Sale" is defined 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 Seller" is defined as a person that makes remote sales in the State.

Hence, it appears that this Act would apply to any business (not just Internet Retailers) that makes sales into a state in which it does not have nexus.  Therefore, manufacturers or other non-Internet retailers who sell directly to retail customers who do not have sales representatives or any other physical connection with a state may (under this Act) be required to collect sales tax on its remote sales.

Brick and mortar retail stores who sale to customers over the phone, or ship products to customers in other states may be required to collect sales tax in those states.

Have you been focused on Internet retailers without thinking about how it will impact your business? 

Does your company have non-Internet remote retail sales in states where you don't have nexus?

For past posts on the Act, go to What is Fair?

Marketplace Fairness Act: What is Fair? How Will You Comply?

The U.S. Senate approved the Marketplace Fairness Act (MFA) 69 to 27 yesterday.  It now heads to the House of Representatives for a vote.  If approved, online retailers will be required to charge sales tax in 45 states plus District of Columbia.  This legislation could have broader impact for any business with sales greater than $1m into a state. The MFA is expected to face more resistance in the House. 

WHAT IS REALLY FAIR?

I think the article in USA TODAY  raises an interesting point - brick and mortar businesses currently only collect sales tax in the state where they have a store.  Online businesses currently only collect sales tax in the state where they are based.  Isn't that fair?  Why should online businesses now have to collect sales tax in any state in which they have a sale but no physical location?  Brick and mortar businesses don't have to do that.  Isn't that discouraging online businesses and encouraging brick and mortar businesses?  Is that really "leveling" the playing field or "tilting" it in the direction of brick and mortar businesses?  Or is tilting the playing field in favor of large online businesses against small online businesses?

HOW WILL YOU COMPLY?

Regardless of whether it is constitutional or it levels the playing field or doesn't, is a battle between big and small businesses, is unfair, is more fair or will cause the growth of Internet sales to diminish - one thing is certain - if it is enacted, businesses will have to figure out how to comply without hurting their businesses.

States are supposed to simplify their tax codes and provide software to help businesses comply.  During that process, companies will have to decide if they are going to hire someone in-house to handle the compliance or hire an outside firm to handle.  Finding the right outside consultant at the right price may be the difference.

If this is enacted and you need help, please contact me to discuss how to find the best resource for your company.

For more info on the Marketplace Fairness Act, check out my earlier post:  The Marketplace Fairness Act: Is It Really Fair?

STATE TAXES: WHAT WILL MAKE YOUR COMPANY CHANGE - CHOICE or AUDIT NOTICE?

This is my second day of being 40. . . so far so good.  I want to thank you for the birthday wishes I received. 

Over the past couple of weeks (either because I was turning 40 or because I am simply a deep thinker and emotional person), I was thinking about what causes REAL change in a person?  Is it simply a choice a person makes, or is it usually because some outside force or factor occurred to cause that change?  For example, you often hear about people getting involved in certain causes or nonprofit organizations after a loved one of theirs has a certain disease or a tragedy happens in their life.  Some people lose their jobs which is the catalyst for them to finally chase their dream career. 

My point is, I think some or most people will continue to do the same thing (even though they have a burning desire to do something else) until they are forced to by some outside factor.  It is difficult for people to come to their "tipping point" on their own or simply out of choice.  Why do you think this is?

I'm not sure what the answer is, all I know is that people generally change direction either out of fear or pleasure.  However, based on what I have observed, it seems that fear or tragedy is the greater motivator or cause of change.

So how does this relate to state taxes?  Well, I am so glad you asked.  Companies more often than not seem to play the "wait and see game" when they expand their business across state lines.  They may not comply with the new and complex rules of other states right away.  As the company continues to expand in more and more states, the exposure for state tax liability may grow and grow.  However, the company may choose not to file or comply because they are following the "same as last year" approach.  The problem with this approach is that the statute of limitations don't start until the company files a tax return; hence, until the company starts filing, the company has state tax exposure for each tax year back to the first year it began doing business in the state.  Add on interest and penalties and the exposure can be substantial.  So what do you do if this scenario describes your company and you want to do something about it? 

Well, the good news is that your company may be able to file what is called a "Voluntary Disclosure Agreement" (VDA) with the state.  This allows your company to come forward and pay back taxes and interest with the benefit of abating all penalties.  The biggest benefit is usually the limited look-back period.  Meaning, most (not all) states' VDA programs only require a company to file returns for the previous 4 years instead of all of the prior years' returns that are required (which depends on each company's situation). 

WHAT IS YOUR COMPANY"S TIPPING POINT?

So what has been your company's strategy in regards to filing in multiple states as it has expanded?  What is your company's next step to mitigate any exposure? 

Will your company CHOOSE to change its behavior on its own, or will it be FORCED to change once it receives the audit notice?

What is your company's "tipping point"? 

The "Pause" Button and the Marketplace Fairness Act (kind of)

I'm back from vacation. Hope you missed me.  I missed you.

We went to San Francisco for a few days.  We walked on the Golden Gate Bridge and rode a cable car.  We also escaped to Yosemite Park for a few days where we walked among the huge trees, saw multiple beautiful waterfalls and relaxed in a rental house by the river.  It was truly a beautiful, relaxing, nature wonderland.  You may see pictures and post cards of this type of beauty, but it does not compare to actually seeing it in person.  It was sometimes hard to believe that type of beauty actually exists.  To end the week, we returned to San Francisco and explored the northern Californian coast line.  We stopped and sat on the beach for a while.  It was like three vacations in one.  I didn't want it to end.

You probably don't know this, since this is a state tax blog, but I am an emotional person.  I actually turn 40 this Sunday.  Can't believe it.  Every vacation we take is like a time capsule.  We make so many memories with our daughters.  Sometimes I just want to hit the "pause" button and freeze time, but time just keeps going.

The main thing I notice on vacation versus every day life, is the pace.  On this vacation, we really slowed down the pace and relaxed.  Especially since we didn't have a cell phone signal during the time we were in Yosemite.  I have to say, it was kind of nice.  It makes you realize how fast our normal every day lives are.  The world we live in today is so fast.  It's also full of discontent and depression.  People are always striving for more.  When will enough be enough?

Life is so short, what are we doing?  What are we spending our time doing?  Who do we spend our time with?  Are we so busy that we never look up?  We never take the time to enjoy life?  Enjoy our family? 

As I get back in the flow of work this week, I am trying to take time every day to "pause."  To remember that life is too short to be afraid.  Life is too short to stress about details that don't really matter.  At the end of the day, the striving for perfection is a goal that can't be met and will only lead to continuous depression and discontent.  We must strive to be effective and be who we are.  Who we were meant to be.

Do something fun every day.  Letting go is sometimes the best way to hold on.

** SIDE NOTE:  Yes, I know the MARKETPLACE FAIRNESS ACT is moving through the House and the Senate.  Will it pass?  It is looking more likely.  Is it constitutional?  Maybe not.  Is it a new tax?  No.  Is it a new tax collection mechanism?  Yes.