Opposing Burdensome Business Tax Obligations
DMA opposes burdensome and unrepresentative taxes and administrative collection requirements on remote sellers. DMA works in both Congress and the States on these issues. DMA has faced and is facing five separate tax issues: a) collection of sales and use taxes by remote sellers; b) business activity taxes on out of state companies; c) taxing Internet access; d) affiliate nexus taxes; and e) taxing services.
Learn the latest on business tax legislation by visiting DMA’s State Legislative Tracker.
Collection of Sales and Use Taxes by Remote Sellers
The U.S. Supreme Court in its Quill decision in 1992 held that under the Constitution a state could not require an out-of-state marketer to collect sales or use taxes from purchases of its citizens unless the marketer had physical presence or nexus in the state. The Court noted, however, that Congress could grant that authority to the States. In response to Quill the States created the Streamline Sales and Use Tax Agreement (SSUTA) to simplify the complex sales tax structure within the United States. Many states have voted to join the SSUTA and have lobbied Congress to overturn the Quill decision. DMA contends that the SSUTA is streamlined in name only. After more than a decade of work, over 7,500 taxing jurisdictions remain, sellers could be subject to 45 state audits, different states still treat certain products differently, multiple unique sales tax holidays still apply for specific items, and states have differing definitions for the same product (i.e. is a 50% juice drink juice or a soft drink, for example). Without true simplification and payment for being a tax collector DMA will continue to oppose any Congressional approval of SSUTA.
In an attempt to bypass the Quill decision, Colorado enacted reporting requirements in 2010 for out-of-state marketers to: a) notify Colorado customers (anyone sending products to a Colorado address) that sales taxes were not collected and the customer must pay use taxes to Colorado; b) send via First-Class Mail to each Colorado customer a year end summary of their purchases; and, c) send to the Colorado Department of Revenue the total sales amount and each Colorado address to which product was shipped for each Colorado customer. DMA has sued Colorado claiming that the reporting requirement violates the Quill decision and the U.S. Constitution. DMA’s request for a preliminary injunction to stop enforcement of the law was granted in January 2011. The case remains under consideration. In the meantime, Oklahoma, South Dakota and Vermont have all enacted legislation requiring out-of-state marketers to notify customers during a remote sales transaction that use taxes may be owed and how to report and pay those taxes.
DMA’s Senior Vice President of Government Affairs, Jerry Cerasale, speaks about the challenges of streamlining Internet sales tax on C-SPAN’s “The Communicators.”
Business Activity Taxes
Ohio and Michigan have passed a business activity tax (Ohio calls it a Corporate Activity Tax (CAT)) that they assess against both in-state and out-of-state companies. Both claim that the physical presence requirement of the Quill decision applies only to collection of sales taxes. They claim that any out-of-state company that receives an economic gain from doing business with an Ohio or Michigan resident has economic nexus within the state and is subject to this tax. The economic nexus theory has not been tested in any court. Ohio is being more aggressive assessing this tax, and DMA urges all its members that receive a tax assessment from Ohio to appeal the assessment in order to preserve appeal rights in the courts. No company has taken Ohio to court because no company has completed the appeal process within the Ohio tax department, which is required before any appeal to the courts. DMA will assess any further action after the internal Ohio appeal process is completed by a marketer and a court appeal is in order.
Internet Access Taxes
Localities have sought to tax Internet access as they do other telecommunications services. DMA has successfully lobbied Congress to prevent that tax. DMA believes that such a tax would discourage use of the Internet and would, thus, impede ecommerce.
Affiliate Nexus Taxes
New York passed a law in 2008 redefining nexus for the purposes of requiring the collection of sales tax so that if a marketer compensated an affiliate located in New York for linking to the marketer’s website from the affiliate’s website, that marketer then had physical nexus in New York and was required to collect sales taxes for all its sales in New York. Amazon and Overstock have sued New York and an appeal is pending. Arkansas, California, Connecticut, Illinois, North Carolina, Rhode Island and Vermont have all passed similar legislation. However, most large marketers using this form of marketing canceled all affiliate relationships within those states. Officials from both NC and RI have publicly stated that neither state has seen any increase in tax collections, and their residents have lost business due to the cancelation of all affiliate agreements. DMA along with the Internet Alliance oppose affiliate tax legislation when proposed in any state.
New York Tax Department recently issued a tax bulletin explaining that list rentals and sales are subject to sales taxes. DMA is exploring options concerning this tax bulletin. The SSUTA if adopted by a state allows the state to tax delivery services. This includes postage. However, a state may not tax a service of the Federal government. So the states will not tax postage paid directly by the mailer to the Postal Service. However, they will tax postage if, for example, a printer pays the postage and then bills the mailer. DMA has been working with the Postal Service to try to create a postage payment system that would have the mailer always pay the postage to the Postal Service to avoid this state taxation.