Colorado Out of State Retailers Must Begin Collecting Sales Tax Soon

Transcription

1 September 2018 Colorado Out of State Retailers Must Begin Collecting Sales Tax Soon Out of state retailers must collect sales tax if they meet Colorado s economic nexus requirements. Collection requirements will begin on December 1, This new rule is in the wake of the decision in Wayfair v. South Dakota. The sales thresholds for economic nexus in Colorado are: Economic Nexus Thresholds for Out of State Retailers $100,000 or more in annual gross sales or services into Colorado, including exempt sales; or 200 or more annual sales to customers in Colorado. Local Tax Collection Retailers that must collect Colorado state sales tax must also collect: state collected local sales tax; and special district sales tax. Retailers should contact home rule cities for guidance. Home rule cities that the state doesn t collect local sales tax for should be contacted directly. 1

2 Sales Tax License Required Out of state retailers meeting the nexus threshold must get a Colorado Sales Tax license. Online applications for out of state retailers will be available on November 1, Applications are due by November 30, What Steps Do Out of State Retailers Need to Take? The Department of Revenue provides detailed instructions for out of state retailers on: licensing; registration; collection; filing; and payments. Out of state retailers are subject to audit. Audits for Out of State Retailers Enforcement Date for Out of State Retailers The first day out of state retailers must start collecting sales tax is December 1, Information for Out of State Retailers, Colorado Department of Revenue, September 12, 2018; Emergency Regulation (2), Colorado Department of Revenue, effective October 1, 2018, and effective as noted above; News Release, Colorado Department of Revenue, September 11, 2018 Illinois Illinois Sales Thresholds for Remote Sellers Addressed in Emergency Rules Emergency rules on nexus for remote sellers making sales in Illinois have been issued by the Illinois Department of Revenue. Legislation enacted earlier this year requires remote retailers to collect use and service use tax when they meet certain sales thresholds in Illinois. Emergency Guidance on Economic Presence As of October 1, 2018, remote retailers making sales into Illinois must collect Illinois tax if: their gross sales into Illinois are $100,000 or more; or they enter 200 or more sales transactions in Illinois. The sales thresholds only apply to sellers that do not have a physical presence in Illinois. And the rules do not apply to remote retailers that make only exempt sales into Illinois. The emergency rules contain examples on how to calculate whether a sales threshold has been met. In addition, they give guidance on how to determine if a seller must collect tax beginning October 1. Emergency Rule 86 Ill. Admin. Code , Illinois Department of Revenue, effective September 11,

3 Indiana Indiana Ready to Enforce Economic Nexus for Sales Tax Indiana will enforce its sales tax economic nexus law on October 1, Retailers will be required to collect sales tax if they have a minimum number of sales revenues or transactions in Indiana. Physical presence will not be required. Declaratory Judgement Action Resolved The Department of Revenue ed a bulletin telling taxpayers that the legal challenge to Indiana s law regarding remote sellers ended this week when a county superior court entered an order granting voluntary dismissal. The timing for enforcing economic nexus rules depended on when the legal challenge seeking a declaratory judgment was resolved. The bulletin announces that enforcement will begin October 1, and retailers may register to collect sales tax any time. The economic thresholds for enforcing sales tax collection by remote sellers are: gross revenue from sales into Indiana exceeding $100,000; or 200 or more separate transactions into Indiana. In addition, the department discusses enforcement on its Wayfair FAQ page. Legal Challenge to Indiana's Remote Sellers Law Resolved, Indiana Department of Revenue, August 31, 2018; South Dakota v. Wayfair, Inc.: Frequently Asked Questions, Indiana Department of Revenue, August 31, 2018 Kentucky Kentucky Provides Guidance on Global Intangible Low Taxed Income Kentucky provided guidance on its treatment of global intangible low taxed income (GILTI). The guidance covers how corporate income taxpayers must report GILTI. What Is GILTI? The Tax Cuts and Jobs Act (TCJA) added IRC 250 and IRC 951A. IRC 951A requires U.S. shareholders of controlled foreign corporations (CFC) to include its GILTI in gross income for the tax year. This provision operates in a manner like Subpart F income. IRC 250 allows a deduction for part of a domestic corporation's GILTI. How Do Taxpayers Report GILITI? Taxpayers calculating Kentucky corporate income tax liability can deduct all dividend income. Kentucky treats Subpart F income as dividend income. Thus, taxpayers can deduct GILTI. Kentucky does not allow any deduction directly or indirectly related to nontaxable income. Kentucky considers GILTI nontaxable income. So, Kentucky does not allow the IRC 250 deduction and taxpayers must add it to federal taxable income. 3

4 Taxpayers must also add any expenses related to GILTI. A taxpayer that cannot determine actual expenses can estimate those expenses. Finally, a taxpayer cannot include nontaxable GILTI in: the calculation of its sales factor for apportioning income to Kentucky; or the calculation of gross receipts for its Kentucky limited liability entity tax. TAM 18 02, Kentucky Department of Revenue, August 2018 Maine Conformity Legislation Enacted A Maine income tax conformity bill became law without Gov. Paul LePage s signature. The legislation also makes various other changes to the state s income tax laws. For details on the legislation s provisions, see the earlier story announcing the bill s passage by the Maine Legislature. Significant Changes Made by the Legislation In addition to updating the state s IRC conformity date, the legislation makes several other significant changes concerning: corporate tax brackets; net operating loss deductions; alternative minimum tax for corporations; foreign earned income; standard deductions; itemized deductions; personal exemptions; education savings plans; domestic production activities deductions; sales and property tax fairness credits; and fiduciary adjustments for tax on trusts and estates. New Credits Enacted New credits are also created for: dependent exemptions; and employer paid family and medical leave. L.D (S.P. 612), Laws 2018, effective September 12,

5 Massachusetts Massachusetts Issues Draft IRC Sec. 965 Guidance Massachusetts issued draft guidance that explains the impact on corporate excise taxpayers of IRC Sec. 965 income. The guidance includes a chart that shows where to report the income on various tax forms. What Is IRC Sec. 965 Income? The Tax Cuts and Jobs Act of 2017 (TCJA) enacted IRC Sec It requires taxpayers to include untaxed foreign earnings and profits from post 1986 tax years in their Subpart F income. It also allows a deduction under IRC Sec. 965(c) for part of the earnings that reduces the tax rate. Taxpayers must report the entire amount of IRC Sec. 965 income on their 2017 federal income tax return. A taxpayer can elect to pay tax on the income in installments over 8 years. How Do Taxpayers Report IRC Sec. 965 Income? The guidance states that taxpayers must include IRC Sec. 965 in their Massachusetts income. Massachusetts will not allow the deduction under IRC Sec. 965(c). Massachusetts will treat the income as dividend income. So, taxpayers can claim a dividends received deduction for 95% of IRC Sec. 965 income. How Does IRC Sec. 965 Income Impact Apportionment? The sales factor of the Massachusetts apportionment formula for business corporations excludes dividends. Thus, a corporation cannot include IRC Sec. 965 income in either the numerator or denominator of its sales factor. In contrast, the receipts factor for financial institutions includes dividends from: investment assets and activities; and trading assets and activities. So, a financial institution can include IRC Sec. 965 income in both the numerator and denominator of its receipts factor. Combined filing groups that include both business corporations and financial institutions must adjust the apportionment factors. Does Massachusetts Allow Installment Payments? The election to pay tax liability on IRC Sec. 965 income in installments does not apply for Massachusetts corporate excise tax purposes. Working Draft TIR 18 XX: Treatment of Deemed Repatriated Income, Massachusetts Department of Revenue, September 11,

6 North Carolina North Carolina Provides IRC 965 Reporting Guidance North Carolina provided guidance on IRC 965 income reporting for corporate and personal income taxpayers. The guidance provides details on how to report the income on 2017 North Carolina: C corporation tax returns (Form CD 405); S corporation tax returns (Form CD 401S); partnership income tax returns (Form D 403); estate and trust income tax returns (Form D 407); and individual income tax returns (Form D 400). What Is IRC 965 Income? The Tax Cuts and Jobs Act of 2017 (TCJA) enacted IRC 965. It requires taxpayers to include untaxed foreign earnings and profits from post 1986 tax years in their Subpart F income. It also allows a deduction for part of the earnings that reduces the tax rate. Taxpayers must report the entire amount of IRC 965 on their 2017 federal income tax return. A taxpayer can elect to pay tax on the income in installments over several years. What if a Taxpayer Already Filed a 2017 Return? Taxpayers that already filed a 2017 North Carolina income tax return and owe tax on IRC 965 income must file an amended return. A taxpayer can avoid penalties by paying the tax with the amended return. Interest also accrues on any unpaid tax. A taxpayer can request a waiver of penalties. Can Taxpayers Make Installment Payments? The election to pay in installments does not apply to North Carolina taxpayers. Taxpayers must pay any North Carolina tax on IRC 965 income when they file their tax return. Taxpayers who owe North Carolina income tax can request a monthly installment agreement. But, interest continues to accrue on any unpaid tax until paid in full. IRC Section 965 Repatriation Guidance, North Carolina Department of Revenue, August 21, 2018 North Carolina Provides Guidance on IRC Conformity Update North Carolina provided guidance on the impact of its IRC conformity update. Legislation updated conformity from January 1, 2017 to February 9, 2018). The guidance applies to taxpayers computing and reporting North Carolina: corporate income tax liability; and personal income tax liability. 6

7 What Does the Update Mean? The update means North Carolina follows most of the changes made to the IRC by the federal: Tax Cuts and Jobs Act (TCJA); and Bipartisan Budget Act of 2018 (BBA). Do Differences Exist Between Federal and North Carolina Law? North Carolina did not adopt all the changes made by the TCJA or BBA, including: the mortgage insurance premiums deduction; the exclusion of income from cancelled home loan debt; the student tuition and fees deduction; the deferral and exclusion of gain from opportunity zone investments; the taxation of a corporation's global intangible low taxed income (GILTI); and the deduction for a corporation's GILTI and foreign derived intangible income (FDII). These differences affect lines on the 2017 North Carolina income return. Taxpayers that already filed a 2017 income tax return and owe additional tax must file an amended return. A taxpayer can avoid penalties by paying the additional tax with the amended return. Interest also accrues on any unpaid tax. A taxpayer can request a waiver of penalties. Important Notice: North Carolina s Reference to the Internal Revenue Code Updated, North Carolina Department of Revenue, August 21, 2018 North Dakota Corporate Income Tax Guidance Issued on Repatriation Income, GILTI, and FDII The starting point for computing North Dakota taxable income includes IRC 965 repatriation income and the IRC 965 deduction. But taxpayers must add the IRC 965 deduction back to North Dakota taxable income, similar to other federal deductions for dividends received. A taxpayer that already filed its 2017 North Dakota return without including IRC 965 income must file an amended return. Reflecting IRC 965 Income On North Dakota Returns All taxpayers must treat the IRC 965 inclusion amount as Subpart F income. Transition Tax Statement. Taxpayers must file the federal Transition Tax Statement with their North Dakota return when IRC 965 income is reported. Deduction Addback. The dividends received deduction addback on the North Dakota return should be the sum of Form 1120, Line 29b, and the IRC 965 deduction. 7

8 Worldwide Combined Reporting. Worldwide filers can take a deduction as an intercompany dividend elimination for the IRC 965 amount attributable to a controlled foreign corporation included in the combined report. Water s Edge Method. For water s edge filers, 70% of the IRC 965 inclusion amount is deductible as a foreign dividend. Installment Payments. The federal election to defer payments of tax related to the IRC 965 provisions does not affect the timing of North Dakota tax payments. GILTI Global intangible low taxed income (GILTI) under IRC 951A is reflected in federal taxable income, which is the North Dakota tax computation starting point. GILTI Deduction. Taxpayers must add back the GILTI deduction under IRC 250 because it is treated the same as other federal deductions for dividends received. Worldwide Combined Reporting. Worldwide filers can take a deduction as an intercompany dividend elimination for GILTI attributable to a controlled foreign corporation included in the combined report. Water s Edge Method. For water s edge filers, 70% of GILTI is deductible as a foreign dividend. FDII North Dakota follows the foreign derived intangible income (FDII) deduction under IRC 250. The amount does not relate to a deduction for dividends received. Thus, North Dakota does not include the amount in the addback for the federal dividends received deduction. Base Erosion Anti Abuse Tax The base erosion anti abuse tax created by the Tax Cuts and Jobs Act has no impact on the North Dakota tax computation. This is because the tax does not affect federal taxable income. Treatment of TCJA International Tax Provisions, North Dakota State Tax Commissioner s Office, August 2018 South Carolina Collection From Remote Sellers Begins November 1 South Carolina will collect sales tax from remote sellers starting November 1, Provisions allowing collection from remote sellers are not enforced. But, the decision South Dakota v. Wayfair, Inc., et al. (U.S. Supreme Court, No , June 21, 2018) caused the state to reverse it position. What is the Economic Nexus Standard? A remote seller with economic nexus with South Carolina must collect sales and use tax. Economic nexus occurs when gross sales into South Carolina are more than $100,000 in the current or last calendar year. 8

9 To see if it has economic nexus, a remote seller must include the total gross proceeds of all of the following into the state: retail, exempt retail, and wholesale sales of tangible personal property; products transferred electronically; and all sales by the remote seller, including sales of another person s property. Property owned by the remote seller but sold by a marketplace seller are not included in gross proceeds. The marketplace seller must get a license and collect tax. When Does Collection Begin? Remote sellers must get a retail license and collect by November 1, 2018, if they had economic nexus in: calendar year 2017; or from January 1 through September 30, Remote sellers with economic nexus on or after October 1, 2018, must collect tax starting the first day of the second calendar month after nexus. Remote sellers without economic nexus can still collect and remit tax. Revenue Ruling 18 14, South Carolina Department of Revenue, September 18, 2018 South Dakota Remote Sellers and Marketplace Providers Soon Subject to Economic Nexus Laws Many remote sellers and marketplace providers must soon get a South Dakota sales tax license and pay sales tax. South Dakota enacted two economic nexus laws in response to the U.S. Supreme Court s decision in Wayfair. Remote Seller and Marketplace Provider Compliance Requirements Remote sellers and marketplace providers that meet the annual economic nexus threshold must: register for a South Dakota sales tax license; and collect and remit South Dakota sales tax. Economic Nexus Threshold The economic nexus threshold is: $100,000 or more in annual sales into South Dakota; or 200 or more annual transactions into South Dakota. To determine the total amount of sales or the number of transactions into South Dakota, taxpayers should include the sale of: 9

10 tangible personal property; products transferred electronically; and services. Effective Dates for Economic Nexus Enforcement The effective dates are different for remote sellers and marketplace providers. Remote Sellers Effective Date. Remote sellers meeting the threshold must comply by November 1, The Wayfair litigants are not subject to the November 1, 2018, deadline. The court will determine their collection effective date in their court proceedings. Marketplace Providers Effective Date. Marketplace providers meeting the threshold must comply by March 1, How Do I Apply for a South Dakota Sales Tax License? Remote sellers and marketplace providers can register for a South Dakota sales tax license at: To register with more than one state, go to: What is a Remote Seller and a Marketplace Provider? The Department of Revenue has provided definitions and examples of remote sellers and marketplace providers. Remote Sellers. A remote seller is a business without physical presence in South Dakota. Marketplace Providers. There are three different types of marketplaces. But, only two are subject to South Dakota s economic nexus laws. The three types of marketplaces are: fulfillment service; facilitator; virtual classified ads. Fulfillment Service. Fulfillment service companies are subject to the economic nexus laws. A fulfillment service connects the seller to buyers and handles all aspects of the transactions, such as: ordering; payments; warehousing; and shipping. An example of a fulfillment service is Fulfillment by Amazon. Facilitator. Facilitators are subject to the economic nexus laws. Facilitators connect sellers to buyers and only processes the orders and payments. The actual seller is usually responsible for the shipping. Examples of facilitators are ebay and Etsy. 10

11 Virtual Classified Ads. Virtual classified ad companies are not subject to the economic nexus laws. A virtual classified ad business: advertises goods and services for sale; connects sellers to buyers; and has no other involvement in the transaction. An example of a virtual classified ad company is Craigslist. South Dakota v. Wayfair Inc. Decision In South Dakota v. Wayfair Inc., U.S. Supreme Court, Dkt , June 21, 2018, the U.S. Supreme Court held that physical presence is no longer required to establish sales and use tax nexus. S.B. 1 and S.B. 2, Laws 2018, effective September 12, 2018, and applicable as noted above; Release, South Dakota Department of Revenue, September 13, 2018 Tennessee Post Wayfair Tax Collection by Out of State Dealers Discussed Tennessee provides sales and use tax advice for out of state dealers in the wake of the decision in Wayfair v. South Dakota. South Dakota v. Wayfair Inc. Decision In South Dakota v. Wayfair Inc., U.S. Supreme Court, Dkt , June 21, 2018, the U.S. Supreme Court held that physical presence is no longer required to establish sales and use tax nexus. Tennessee Position Post Wayfair A dealer with no physical presence in Tennessee is not required to collect sales and use tax until the state issues a notice. Tennessee will issue a notice that provides specifics regarding when such dealers will be required to collect and remit the tax. Dealers that had no physical presence in Tennessee and did not collect the tax will not be assessed for any periods that precede the department s notice. The Tennessee Department of Revenue encourages such dealers, however, to voluntarily collect and remit the tax. Economic Nexus Rule Tennessee did adopt an economic nexus rule effective January 1, The rule provides that the following out ofstate dealers with no physical presence in Tennessee have a substantial nexus with Tennessee: those who engage in regular and systematic solicitation of consumers in Tennessee; and make sales exceeding $500,000 to consumers in Tennessee during the previous 12 month period. However, legislation enacted in 2017 prohibits the department from enforcing the rule until the General Assembly reviews the Wayfair decision. The department will not apply the economic nexus rule retroactively. 11

12 Dealers may register through the online Tennessee Taxpayer Access Point (TNTAP) under "Register a New Business" at Dealers may also register with Tennessee by accessing the Streamlined Sales Tax Registration System at Important Notice No , Tennessee Department of Revenue, August 2018 Texas Company s Sourcing of Subscription Revenues Upheld A satellite radio company properly apportioned its subscription revenues to Texas based on the locations of its primary production facilities. This reflected the fair value of the services performed in Texas for franchise tax purposes, according to a district court. Company Background The company produced and delivered radio programming to subscribers throughout the nation via satellite transmission. Its headquarters, transmission equipment, and production studios were almost all outside of Texas. Also, the company produced, recorded, edited, and transmitted almost all its audio content from outside of Texas. Apportionment Percentages Based on primary production facility locations, the company apportioned 2.62% and 0.22% of subscription receipts to Texas for 2010 and The comptroller audited the company s returns and reapportioned the receipts based on where subscribers received the satellite transmissions. Thus, the comptroller apportioned 8.30% and 8.36% of the receipts to Texas for 2010 and The company paid the additional tax assessed under protest. Texas Law Texas assigns receipts from services to the location where the taxpayer performs the services. Texas bases the assignment on the fair value of the services performed in each location. Expert Testimony An expert testified that the company performed approximately 0.36% and 0.20% of the fair value of its services in Texas for 2010 and The comptroller did not produce any evidence showing a different fair value for the services in Texas. The court found the expert's analysis a credible method for determining fair value. But, the court called for one small adjustment to exclude the value of satellites in orbit, which are not subject to any taxing jurisdiction. Another expert noted that the state sought to apply a market based method to apportion service receipts. This differed from the origin based method, which looks to the location where the taxpayer performs the service. Conclusion The court concluded that Texas uses an origin based method for sourcing service receipts. Also, the apportionment percentages reported by the company were consistent with the fair value of services performed in Texas. Thus, the company was entitled to a tax refund for both 2010 and

13 Sirius XM Radio Inc. v. Hegar, District Court, 261st District (Texas), No. D 1 GN , August 14, 2018 Wisconsin Remote Seller Registration, Collection Dates Announced Wisconsin s sales and use tax economic nexus rule is effective as an emergency rule beginning October 1, The emergency rule expires February 27, The rule is consistent with the U.S. Supreme Court s Wayfair decision. In addition, Wisconsin added some common questions and answers to its Wayfair guidance for remote sellers. Nexus Thresholds for Out of State Sellers Under the emergency rule, remote retailers must register and collect Wisconsin tax if, in the previous or current year, their: annual gross sales into Wisconsin exceed $100,000; or annual number of separate sales transactions into Wisconsin is 200 or more. Small Seller Exception Out of state sellers that do not meet the nexus thresholds qualify for the small seller exception. These sellers do not have to register or collect Wisconsin tax until they meet or exceed a nexus threshold. Registration, Collection Dates for Sellers Exceeding a Nexus Threshold Remote sellers that meet or exceed a nexus threshold must register and collect Wisconsin sales or use tax as follows. Remote sellers exceeding a threshold in Remote sellers exceeding a threshold in 2017 must register and collect Wisconsin tax beginning on October 1, Remote sellers exceeding a threshold before October 1, Remote sellers exceeding a threshold before October 1, 2018, must register and collect Wisconsin tax beginning October 1, In addition, these remote sellers must collect Wisconsin tax in 2019 because they exceeded a threshold in Remote sellers exceeding the $100,000 threshold between October 1, 2018, and December 31, Remote sellers exceeding the $100,000 threshold between October 1 and December 31, 2018, must register and collect Wisconsin tax beginning with their next sales transaction after meeting the threshold in In addition, these remote sellers must collect Wisconsin tax in 2019 because they exceeded the $100,000 threshold in Remote sellers meeting the 200 sales threshold between October 1, 2018, and December 31, Remote sellers meeting the 200 sales threshold between October 1 and December 31, 2018, must register and collect Wisconsin tax beginning with that 200th sale. In addition, these remote sellers must collect Wisconsin tax in 2019 because they met the 200 sales threshold in Remote sellers exceeding a threshold in 2017 but not in Remote sellers exceeding a threshold in 2017 but not in 2018 must register and collect Wisconsin sales or use tax beginning on October 1, However, these remote sellers: 13

14 do not have to collect Wisconsin tax in 2019 unless they meet a threshold in 2019; can inactivate their use tax registration certificate effective January 1, 2019; and must collect Wisconsin tax in 2019 if they do not inactivate their use tax registration certificate. Local Tax Collection Retailers that have to register and collect Wisconsin sales or use tax must also collect and remit applicable local taxes. Registration and Collection Dates for Remote Sellers, Wisconsin Department of Revenue, September 10, 2018; Remote Sellers Wayfair Decision, Wisconsin Department of Revenue, September 10, 2018; Proposed Rule Sec. Tax 11.97, Wisconsin Department of Revenue, September 2018 If you have any questions, please contact your tax advisor or: Curtis Ruppal , Ext curtis.ruppal@plantemoran.com Mike Merkel , Ext michael.merkel@plantemoran.com Ron Cook , Ext ron.cook@plantemoran.com Julie Corrigan , Ext julie.corrigan@plantemoran.com The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use CCH Incorporated and its affiliates. All rights reserved. 14