Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
Multi-State Sales and Use Tax Attorneys
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Refunds just got a whole lot easier in Alabama. In a typical transaction, customer pays business, who in turn remits the sales tax to the government. While technically the state can go after consumers directly for sales tax, it is not practical for the government to do so. As a result, it is generally the business that finds itself subject to a sales and use tax audit. But when it comes to a refund, where customer is the one who paid the tax while business is the one who remitted it, who applies?

Previously, Alabama consumers were required to file a joint petition with the business that collected and remitted the tax. However, Act 2018-180 (S.B. 63), Laws 2018, which became effective on March 8, has changed that, providing that customers can now directly apply for the refund by themselves. Not only can a consumer directly apply, but a business can apply by itself as well in certain circumstances.

Such applications are not limited to sales tax. Consumers can also apply for use tax, public utility tax, and transient occupancy taxes by themselves. This opens the door for customers who were previously unable to convince businesses to go through the time and effort of applying for a refund that would not benefit the business in the end. With no or little motivation to get involved, one can easily see why a business would be uninterested in taking up the fight for someone else’s refund.

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The Alabama Tax Delinquency Amnesty Act of 2018 is effective as of March 6, 2018. Alabama taxpayers will need to act quickly, however, as the amnesty program will be held only for a period of time beginning July 1, 2018, and ending September 30, 2018. While property taxes, motor fuel taxes, and motor vehicle taxes are excluded from the amnesty program, all other taxes do qualify for the program if the taxes: (1) were due prior to January 1, 2017, and (2) were for taxable periods that began before January 1, 2017.

To enter the program, applicants must waive any rights to protest or initiate a proceeding, administrative or judicial, for the taxes that fall under the amnesty program. If approved, the amnesty cannot be applied outside the narrow scope of the agreement. The agreement applies only for the specific tax and the specific period.

How does the Alabama Tax Delinquency Amnesty Act of 2018 work? It contains a three-year look-back period, which is applied separately to each type of tax. Please note, if there is tax collected but not remitted, the look-back period extends back as far as point of collection. It is vital that a company evaluate its records and determine if tax was collected from customers and not remitted to the state before applying for this amnesty.

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As of January 1, 2018, two new taxes are in effect in Illinois on rented merchandise. The enactment of these laws occurred in August 2017, but was not effective until this month. Specifically, two taxes are on (1) transactions in which a consumer rents merchandise, and (2) a consumer’s use of rented merchandise. These complimentary taxes are imposed on those engaged in the business of renting merchandise under “rental purchase agreements.” Rental purchase agreements must meet two requirements. First, they must (1) note that the consumer will use the merchandise for personal, family, or household purposes; and (2) have an initial period of 4 months or less that is automatically renewable after the initial period with each payment made.

While businesses are liable for the new rental sales and rental use taxes, if use tax is not paid by the customer to the business, then it is the customer who is liable for the tax. Business owners must provide evidence when purchasing their merchandise, which is exempt from sales and use tax, that they are registered with the Department of Revenue as renters of merchandise. To be registered, rental sales tax must be reported on mytax.illinois.gov and paid electronically using Form ST-201, Rental Purchase Agreement Occupation Tax Return.

In December 2017, the Illinois Department of Revenue issued an Informational Bulletin to clarify the new taxes before they went into effect. The guidance was specifically for rent-to-own businesses and customers. Purchases made by these businesses, which are subject to the new rental sales and rental use taxes, are exempt as of January 1, 2018, from Illinois sales and use tax. However, the Department was clear that businesses are required to collect and remit tax on rent paid under rental purchase agreements entered into before January 1, 2018. Consequently, the Illinois Department of Revenue is also offering a one-time credit for taxes paid on purchases of rent-to-own merchandise during the latter half of 2017.

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As of January 1, 2018, candy and soft drinks are subject to the full rate of sales tax in Arkansas. The Arkansas Legislature previously had included these items in the definition of “food” and “food ingredients” to have candy and soft drinks be subject to a reduced rate of sales tax.

Candy is defined as a “preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces.” However, the Legislature has specifically excluded from the definition of candy any “preparation containing flour and shall require no refrigeration.” Soft drink is statutorily defined to mean a “nonalcoholic beverage that contains natural or artificial sweeteners.” Soft drinks do not include beverages containing “milk or milk products, soy, rice, or similar milk substitutes, or that is greater than fifty percent (50%) of vegetable or fruit juice by volume.”

The Department of Finance and Administration (“Department”) has provided examples of what does and does not constitute candy or soft drinks.

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Effective December 1, 2017, Mississippi will be implementing a Rule requiring sellers lacking a physical presence in the state to collect sales tax if the sales into the state exceed $250,000 for the prior twelve months.

By way of background, the United States Supreme Court has held a state can only force a seller to collect sales tax if the seller has a physical presence in the state.  Here, the Mississippi Department of Revenue appears to be directly and purposefully contradicting this holding.  In fact, the Commissioner of the Department of Revenue is apparently personally aware of the contradiction but since the United States Supreme Court might overturn its position, then the Commissioner believes the Department is on solid ground.  The Department believes they have the authority to implement and immediately enforce this Rule based on the Department’s interpretation on existing statutes.

An interesting perspective comes in with regards to Mississippi House Bill 480.  This bill would have changed Mississippi’s nexus statute and been similar to the Rule being implemented by the Department.  However, the bill died in committee.  It is curious why the legislature would kill a bill that could bring more revenues into the state, unless the legislature potentially thought the bill would have been unconstitutional.  It is also perplexing why the legislature thought the bill was even necessary in the first place if the Department of Revenue already had the authority based on existing statutes.

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OHIO OFFERS TAX AMNESTY

Ohio is offering a TAX AMNESTY for taxpayers.  The types of Ohio taxes available for the program are: (1) Individual Income Tax; (2) Individual School District Income Tax; (3) Employer Withholding Tax; (4) Employer Withholding School District Income Tax; (5) Pass-Through Entity Tax; (6) Sales Tax; (7) Use Tax; (8) Commercial Activity Tax; (9) Financial Institutions Tax; (10) Cigarette or Other Tobacco Products Tax; and (11) Alcoholic Beverage Taxes.  These taxes must have been unpaid and due as of May 1, 2017.

The amnesty program will begin on January 1, 2018, and go through February 15, 2018.  For those coming forward voluntarily, the state will waive all penalties and one-half of the interest owed.  Additionally, and perhaps the best part, is the state will not pursue any civil or criminal actions.  The key here, though, is that if you have received any contact from the Ohio Department of Revenue concerning being assessed or about a pending audit, then this disqualifies you from the program.

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The Rhode Island legislature has passed a bill, which has been signed into law, allowing for a limited time tax amnesty program.  Beginning on December 1, 2017, and lasting until February 15, 2018, taxpayers will have the ability to come clean on their tax liability.  While tax will still be due, interest will be reduced by 25% and penalties will be waived.  More importantly, the Department of Revenue will not attempt to impose civil or criminal sanctions against the disclosing taxpayer!

Amnesty programs are not always available.  When they do come around, you need to carefully consider whether amnesty is right for you.  While paying the back taxes can be a major drawback, it would be even worse to be charged with a crime.  Consider the pros and cons when weighing how to proceed.  It is also a good idea to figure out your exposure in the state before incurring the costs to disclose.  It could end up being more expensive to disclose than to pay whatever is assessed by the state.  Thus, you could have a good case for not disclosing based solely on costs.

Remember, some states keep their statute of limitations open for civil claims of back taxes against a taxpayer until something is done to trigger the running of the statute of limitations.  Most of the time, filing returns can trigger the statute of limitations to begin running.  Keep the statute of limitations in mind when figuring your total exposure and acceptable risk.  This framework could help you determine exactly what to do.

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Pennsylvania jumped on the bandwagon of states making it difficult for businesses to continue to do business. Pennsylvania wants to place onerous requirements on remote sellers to either collect sales tax or comply with a “notice and reporting” requirement.

Interestingly enough, Pennsylvania provides a “remote seller” is someone who does not have a place of business (nexus) in Pennsylvania and makes taxable sales of tangible personal property. The reason this is interesting is because the very definition of “remote seller” contemplates federal constitutional provisions regarding nexus (i.e., a connection a business has with a state and whether the state can force the seller to collect sales tax) in providing sellers an option to collect sales tax or provide notice to the purchasers about owing tax and submitting a written report to the Department of Revenue.

With this in mind, Pennsylvania appears to be indirectly attempting to force businesses to comply with another administrative burden the business may not otherwise have to do. By making the notification to customers and reporting requirements to the Department so burdensome, Pennsylvania is hoping to force businesses, which otherwise lack nexus, to register and collect sales tax. Collecting the sales tax may be less burdensome than the administrative requirements Pennsylvania is attempting to impose. And if this was not bad enough, the law provides that if a business does not make an election, the business is “deemed” to have elected to comply with the “notice and reporting” requirements.

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The Multistate Tax Commission (“MTC”) recently spearheaded a campaign with two dozen states to allow for businesses using Amazon’s FBA services a chance to come clean. The opportunity for these businesses was to register with the states and collect tax on a prospective basis. The states would then generally forgive any back taxes owed by the business.

The response to the MTC’s program by taxpayers has been overwhelming. The MTC has been flooded with applications for amnesty. As of November 21, the MTC still had not concluded counting the number of applications received. The expected count of amnesty applications may be somewhere in the thousands.

If you did not take advantage of the amnesty program, there is still hope. Our firm discussed the possibility of another amnesty program with the MTC. The MTC is going to evaluate whether another amnesty program could be offered, especially once they have calmed down from the backlog of the current program. The most recent offering appears to have been a large success based on the initial response rate.  It would make sense for the MTC to spearhead another amnesty offering.

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Our practice has recently seen an increase in criminal investigations of automobile dealers across the state for sales tax collected but not remitted to the Department of Revenue. The reason for this is unclear. However, it is vital for auto dealers to educate themselves on sales tax laws and the difference between a sales tax audit and a sales tax investigation.

A sales tax audit is a traditional audit in which the Department searches through Taxpayer records for compliance. Any noncompliance will result in a monetary assessment. Typically, the Department of Revenue looks at Federal Returns, Sales Tax Returns, and DMV Records in formulating an assessment. Often relying on formulas that produce estimations of additional tax due, these assessments are often grossly exaggerated. In addition, the Department often fails to properly account for repossessed vehicles when Taxpayers erroneously reduce these losses from their taxable sales and report the net amount on their returns. These assessments can be challenged both during audit and after a “proposed assessment” has been issued. However, the window to challenge these assessments is small. It is advisable to seek counsel immediately upon contact of the Department of Revenue to ensure that you preserve your right to challenge any assessment.

Alternatively, auto dealers can be contacted by the Department of Revenue for an investigation. These are the cases that our firm has seen an increase of in recent months. It is important to ask upon first contact by the Department whether they are initiating an audit or an investigation. An investigation is criminal in nature. Yes, a Taxpayer can go to prison for sales tax. Whether it was maliciously stealing tax money or simply keeping poor records and making errors over a period of time, the Department will often approach the investigation in the same way. How bad of a crime is “Willful Intent to Defraud the State?” Like most legal questions, that depends. In these cases, it depends on how much money the Department believes has been taken from the state. The breakdown of severity is as follows: