Online Sales Tax Roundup: Internet Cowboys & Cowgirls, Open Your Eyes

UPDATED APRIL 14, 2009

It is my firmly held belief that as one state after another (no matter the size or perceived “importance” of any particular state) will possibly be able to pass Internet sales tax legislation, others are more likely to follow suit. Early adopters can pave the way towards the future in this area and, let it be said, Internet sales tax legislation is an industry issue, most definitely not just a one-state-at-a-time consideration, despite that I list by state below.

Articulating such “firmly held” opinions up front, I should take this moment to remind you that this blog is a quasi-independent-corporate blog. These are my opinions, such that they are, and do not necessarily represent those of Avalara.

I’m hoping that this early springtime roundup of Internet sales tax proposals brings you up-to-date if you’ve been in deep hibernation mode for the past several months. And for all of you Internet cowboys and cowgirls who purchase online with the intent of dodging sales and use tax (or so you like to think) and for those of you who sell online, particularly through affiliates, I suggest you read this post very carefully.

Ever since what happened in New York, things have been changing. Going back to the point in paragraph #1 above, and especially because New York is such an important state, it’s more important than ever to stay on top of these developments. I know I’m asking a lot of you today to read through such a long post but, hey, aren’t there worse ways to spend an afternoon at work?

California: Two bills in California, A.B. 27 and A.B. 178 would expand the definition of “a retailer engaged in business in this state” to pull in those who have more than $10,000 in the latest four calendar quarters from sales to California residents who are referred pursuant to agreements with a California resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property, whether by a link or an Internet Web site or otherwise, to the retailer.

A.B. 27 would also change the definition of “retailer engaged in business in this state” to include a retailer with any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in California under the authority of the retailer or its subsidiary for the purpose of servicing or repairing any tangible personal property.

Word is that Google and several other California-based companies are opposing this one, as is the Performance Marketing Alliance, the California Chamber of Commerce, and the California Taxpayers’ Association, among others. [BTW, I cannot help but wonder about the impact on California and New York should they both lose affiliates – would it ultimately decrease their tax revenues? That’s the question . . .]

UPDATE APRIL 14th
Check out this excellent Los Angeles Times piece on the estimated $1 Billion that California is slated to be short-changed by state residents purchasing online (in tax year 2008) and not reporting for use tax purposes. With the temporary sales tax hike going on there, we could imagine a far higher unreported, uncollected rate for the 2009 tax year.

Connecticut: In another presence through affiliate type of statute, S.B. 806 was introduced by the state Senate to tax certain Internet sales. If signed into law, it would go into effect April 1, 2009 (yes, yes, that’s why I’ve hurried up publishing this post). Notably, the bill passed the state’s Joint Finance Committee with a 53-0 vote (and 3 absentee non-votes).

The bill requires Connecticut SUT to be collected when retailers make sales of TPP or services through an independent contractor or other representative, so long as there is an agreement between the retailer and a Connecticut resident who directly or indirectly refers potential customers to the retailer for consideration via a link on an Internet Web site or otherwise.

Just how many times am I going to type in the phrase “direct or indirect” today? Are you starting to see a trend?

The bill broadens the definition of “retailer” to bring in persons who make such sales so long as the cumulative gross receipts from sales by the retailer to in-state customers who are referred to the retailer exceeds $2,000 (note that the $2,000 sales threshold to create nexus is a far lower threshold than we’re seeing in other bills) during the preceding four quarterly periods.

Florida: An Internet sales tax could be coming to Florida. I’m not going to write too much on this one just yet . . .

Hawaii: H.B. 1405 was introduced January 27 in Hawaii’s House of Representatives. The bill expands the definition of “engaging” in business and would encompass sales of TPP (if you don’t remember what that acronym means, click here) or taxable services. This Hawaiian bill doesn’t necessarily read so very differently from New York’s “Amazon.com” law. (Sales Tax Buzz readers will surely recall that the New York law was upheld in court there.)

Whenever you find yourself thinking about transaction taxes in Hawaii, and who hasn’t, you need to remember that the state is just different, meaning it’s always something of a special case. And in this scenario, we’re talking about reference to excise taxes. In particular, this bill expands the definition of “engaging” in business for paying GET (general excise tax) to assume that certain sellers of TPP or services are, in fact, sales tax vendors that would be required to register and collect states and local sales taxes.

Under this bill, a seller = a biller whenever the seller enters into a direct or indirect agreement with a Hawaiian resident (i.e. a representative, independent contractor, etc.) to refer customers to the seller by one of many means, including a link on a Website.

What would Amazon.com say? We don’t need to wonder, as Amazon.com stated in writing on March 19th that it will absolutely not collect Hawaii excise taxes should this bill be enacted, choosing instead to cut off its relationships with Hawaii resident affiliates:

If HB 1405 were enacted, Amazon would have little choice but to end its advertising relationships with Hawaii-based participants in the Amazon “Associates Program.” (Participants in the Associates Program place Amazon advertisements on their websites, and then are compensated by Amazon for purchases made by visitors whom they refer to Amazon’s website.) HB 1405 would provide no new tax revenue collected by Amazon or others who sever their relationships with Hawaii-based advertisers, and any revenue estimates should take this into account . . . The well-established multistate Streamlined Sales Tax Project (“SSTP”) is the legally-permissible path for states to follow.

Also arguing against Hawaii’s proposed bill in a letter dated March 20, the Direct Marketing Association testified that Hawaii’s proposed bill is tantamount to “hanging out the ‘unwelcome’ sign to electronic commerce.” That’s some strong language!

But in its testimony in support of this bill, Hawaii’s House Committee on Finance clearly states:

One of the most important aspects of this legislation is that it levels the playing field for in-state businesses who must comply with Hawaii’s state and local tax regimes. Without this legislation, it is possible for an out-of-state business to receive a favorable advantage over an instate business selling the same items. This legislation would make the taxation for in-state and out-of-state businesses more fair.

A quarterly cumulative gross receipts threshold of $10,000 would have to be met, as well, to trigger nexus.

Illinois: There are some early rumblings that Illinois is looking to introduce an Internet sales tax bill. I can’t point you to anything yet, it’s just the word on the street (well, in the back alleys, really, at this point, but I just want to give readers a heads up on all potential states).

Maryland: S.B. 1071 was introduced in the Maryland Senate March 28, 2009, after this post was originally published. In line with the other legislation we’re reviewing in this post, Maryland’s bill attributes nexus for sales and use tax purposes if there is at least $10,000 in cumulative gross receipts for the four past quarters and an agent or affiliate relationship with a resident of the state for consideration or otherwise . . . so far, it reads very much like those that are modeled on New York’s legislation.

Minnesota: Similar to Hawaii and New York, there’s the late January introduction of a Minnesota bill (S.F. No. 282) to tax Internet sales. Rep. Loren Solberg and Chair of the House Ways and Means Committee proposed an expansion of the tax on Internet sales that currently applies to sales of over $770 per year to include all Internet sales.

If this bill passes, it will go into effect June 30, 2009. But will this one pass? Word on the Sales Tax Street is that Governor Pawlenty just doesn’t like it very much . . . we’ll have to all wait and see.

New York: Let us not forget New York, which infamously enacted similar legislation and is thus far prevailing in the challenge against it by Amazon.com.

North Carolina: Here’s a state that hasn’t been on too many people’s radar in terms of Internet sales tax. Reading extremely similarly to the New York law, please note that North Carolina’s Internet sales tax proposal (viewable here and here) includes a tax on digital downloads.

Tennessee: As introduced in Tennessee, an Internet sales tax bill (S.B. 1741 and HB 1947) creates a presumption that persons making sales of TPP to persons within the state that have been solicited by independent contractors or other representatives in Tennessee are responsible for sales tax on such sales. If passed, this bill would go into effect July 1, 2009.

Texas: There are serious rumors that lawmakers in Texas are considering some sort of Internet sales tax legislation. Ooooo-whee, look out, you Internet cowboys/girls!

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