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CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2013
CCH Whole Ball of Tax
is available in print. Please contact:
 
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
 
Eric Scott
(847) 267-2179
eric.scott@wolterskluwer.com
 
Brenda Au
(847) 267-2046
brenda.au@wolterskluwer.com

Visit the CCH Whole Ball of Tax site often as new releases and other updates will be posted
throughout the tax season.

CCH provides special CCH Tax Briefings on key topics at CCHGroup.com/Legislation.

 
2013 CCH Whole Ball of Tax
Release (12) | Back to WBOT

2013 CCH Whole Ball of Tax

Contact:
Leslie Bonacum
, 847-267-7153, mediahelp@cch.com
Eric Scott , 847-267-2179, eric.scott@wolterskluwer.com
Brenda Au , 847-267-2046, brenda.au@wolterskluwer.com

CCH Says Tax Reform Could Mean Days Numbered for “Tax-free” Online Shopping

Self-reporting on State Tax Returns May Become Unnecessary If Federal Legislation Advances in 113th Congress

(RIVERWOODS, ILL., January 2013) – While some taxpayers may not know they owe taxes on online purchases and therefore aren’t paying them, federal legislation could bring together the patchwork of state rules, requiring most online retailers to collect the tax, according to  CCH, a Wolters Kluwer business and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com).

“Several federal laws have been proposed over the years to require online retailers to collect sales and use tax in all states with sales tax, but they have never gained enough support to pass,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA. “But there could be greater interest as part of overall tax reform to move forward with a federal law as a means to generate revenue while positioning the new rules as closing a loophole rather than raising taxes.”

Overall, 45 states and the District of Columbia currently have a sales tax. Sales tax is generally imposed on retailers who collect it from consumers when they make an in-state purchase of an item, or in some instances a service. Use tax applies when a consumer makes a purchase from an out-of-state retailer for use in their resident state. Generally, if the out-of-state retailer does not collect the use tax, the consumer still owes it to the state department of revenue.

However, many consumers are unaware of their obligation, even though more than one-half of states include directions with their income tax returns advising taxpayers on how to report and pay the tax.
 
As a result, states are projected to be losing billions of revenue dollars annually from uncollected use tax.

At the federal level, the Main Street Fairness Act is among the laws proposed. It would require online retailers to collect sales taxes regardless of whether they have a physical presence in the state. First introduced in 2011, it resurfaced in 2012 but did not successfully make it to the floor for a vote.

Absent federal legislation, 18 states have enacted their own laws, known as “Amazon laws,” requiring remote retailers to collect taxes from online sales.

“While the likelihood of federal legislation may be increasing, many states are not waiting,” said CCH Senior State Tax Analyst Carol Kokinis-Graves, JD. “More than one-half have proposed or already enacted legislation requiring remote sellers to collect use tax from consumers and further proposals are expected in 2013.”

Below, CCH reviews federal sales tax legislation, strategies states are taking independently to increase collection of taxes for online sales and what taxpayers are expected to do in the meantime as they prepare their 2012 state income tax returns.

Proposed Federal Legislation

Under existing law, retailers nationwide are required to collect sales taxes for purchases made in states in which they have a physical presence, or nexus. But they are not required to collect the tax in states where they have no physical nexus based on a 1992 U.S. Supreme Court decision (Quill Corp. vs. North Dakota). However, the Supreme Court also noted that Congress did have the authority to change this policy and enact legislation requiring all retailers to collect sales tax.

Two decades and many proposals later, Congress is still working toward that end. The proposal that now seems to have the strongest backing, The Main Street Fairness Act, would give states following the Streamlined Sales Tax (SST) Agreement rules the authority to require retailers to collect sales tax on online purchases, regardless of nexus. It would, however, exempt small businesses that earn less than $500,000 annually from out-of-state sales.

The SST effort is an initiative to simplify state sales tax so that there are common definitions for taxable products and uniform procedures across the states. To date, 24 states have passed laws to abide by SST rules.

Despite bipartisan sponsorship from U.S. Senators Dick Durbin (D-IL), Mike Enzi (R-WY) and Lamar Alexander (R-TN) and a show of support from National Conference of State Legislatures, the National Governor’s Association and some large retailers, the bill was never successfully brought up for a vote in 2012, but could be reintroduced in 2013 as part of the discussion on tax reform.

“With federal cutbacks already under way and more likely as Congress prepares to address additional spending cuts, some lawmakers are now recognizing that a federal law requiring online retailers to collect existing sales taxes could help make up state revenue shortfalls,” said Luscombe.

More States Enacting “Amazon” Laws  

In the absence of federal legislation, states continue to press ahead with their own laws.  Collectively, these state-initiated remote seller collection laws require online retailers to collect state use tax in circumstances in which the remote seller has some type of connection with the state, albeit not a physical presence.

According to Kokinis-Graves, the broader nexus provisions already enacted by 18 states generally fall into two categories:

  • Click-through nexus provisions generally require online retailers to collect and remit use tax if they enter into an agreement under which an in-state person, for a commission, refers potential purchasers to the retailer, whether through an Internet-based link or a website, provided certain total cumulative sales thresholds are met; and
  • Affiliate-nexus provisions generally require online retailers to collect use tax if they have an affiliation with a company doing business in the state.

States following one or more of these nexus rules include: Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Indiana, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, and Virginia. The Pennsylvania, Vermont and Virginia provisions are not yet in force, however.

Additionally, several states – most recently Massachusetts at the end of 2012 – have reached an agreement with Amazon under which Amazon will voluntarily collect taxes at some future date. Other states include Indiana, Nevada, New Jersey, Tennessee, and Virginia.

“In order to enforce the collection of a tax that most consumers remain unaware of but most likely has been in effect for decades, state departments of revenue are evaluating all their options,” said Kokinis-Graves. “Strong online sales were reported for the 2012 holiday season, which could lead more states to broaden their nexus provisions.”

Some states also require retailers be more proactive in informing consumers of their obligation to pay the use tax. This includes Colorado, Oklahoma, South Dakota and Vermont; they may also require that the remote seller provide the state department of revenue with an accounting of the sales made to in-state customers. However, a federal court in 2012 found Colorado’s notice and reporting requirements unconstitutional under the Commerce Clause.

For a chart of state sales tax activities, please click here or visit: http://www.cch.com/cchamazontaxmap.pdf.

Reporting Use Tax on 2012 State Income Tax Returns

While many taxpayers may still not know they are required to pay the tax if it’s not collected by a retailer, 28 states and the District of Columbia include instructions with their state tax return for taxpayers to report any uncollected use tax. They also should pay the uncollected tax when filing their state income tax return.

These states are:

Arizona

Louisiana

Oklahoma

Alabama

Maine

Pennsylvania

California

Massachusetts

Rhode Island

Connecticut

Michigan

South Carolina

District of Columbia

Missouri

Utah

Idaho

Nebraska

Vermont

Illinois

New Jersey

Virginia

Indiana

New York

West Virginia

Kansas

North Carolina

Wisconsin

Kentucky

Ohio

Realizing that taxpayers may not keep track of all their unpaid use tax, some states take extra steps to try to help them comply. For example, taxpayers in California can refer to a Use Tax Table, that estimates their use tax liability based on California adjusted gross income for non-business purchases of individual items that cost less than $1,000.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is a leading global provider of tax, accounting and audit information, software and services. Celebrating its 100th anniversary in 2013, CCH has served tax, accounting and business professionals since 1913. Among its market-leading solutions are the ProSystem fx® Suite, CCH Integrator™, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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