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Kansas: Joins growing minority of states with click-through nexus sales tax laws

Kansas Governor Brownback has signed S.B. 83 into law, which, among other things, imposes the obligation to collect and remit sales tax upon out-of-state retailers (“remote sellers”) who satisfy the underlying click-through nexus or other activity nexus presumptions.

“Click-through” nexus

S.B. 83 expands the definition of doing business in Kansas for sales tax purposes to an expansive set of activities, including click-through arrangements. Click-through arrangements are agreements between a remote seller and a Kansas resident where such resident places links on its website that when clicked, directs a user to the respective remote seller’s website. The Kansas resident is then compensated for providing this service. The new Kansas law goes further by including arrangements that refer customers to the remote seller via telemarketing, by in-person oral presentations, or other methods. In such arrangements, the remote seller compensates the Kansas resident for such services. Remote sellers engaging in any of these arrangements are presumed to have nexus and are required to collect and remit sales taxes. In order to be required to collect and remit sales taxes, the arrangement must yield sales with Kansas residents in excess of $10,000 during the previous 12 month period.

Other activities that establish nexus

Remote sellers (i.e., the retailer) will also be presumed to be conducting business in Kansas if any person, other than a common carrier, has sales tax nexus with Kansas and engages in any of the following:

  1. Sells the same or a substantially similar line of products as the remote seller and does so under the same or substantially similar business name;
  2. Maintains a distribution house, sales house, warehouse or similar place of business in Kansas and delivers or facilitates the sale or delivery of property sold by the remote seller to consumers;
  3. Uses trademarks, service marks or trade names in the state that are the same or substantially similar to those used by the remote seller;
  4. Delivers, installs, assembles, or performs maintenance services for the remote seller’s customers within the state;
  5. Facilitates the retailer’s delivery of property to customers in the state by allowing the remote seller’s customers to pick up property sold by the retailer at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in the state;
  6. Has a franchisee or licensee operating under its trade name if the franchisee or the licensee is required to collect the tax under the Kansas remote sellers’ sales tax act; or
  7. Conducts any other activities in the state that are significantly associated with the retailer’s ability to establish and maintain a market in the state for the remote seller’s sales.

Affiliate nexus

The law also states that any affiliated person of the remote seller conducting any of the activities described above would have nexus. “Affiliated person” means any person that is a member of the same “controlled group of corporation” as defined in Section 1563(a) of the U.S. Internal Revenue Code (IRC) as the retailer or any other entity that, notwithstanding its form of organization, bears the same relationship to the retailer as a corporation that is a member of the same controlled group of corporations.

Rebutting remote seller nexus

The presumptions of remote seller nexus described above may be rebutted by demonstrating that the activities of the remote seller or affiliated person in Kansas are not significantly associated with the remote seller’s ability to establish or maintain a market in Kansas for the remote seller’s sales.

The April 25, 2013 Kansas Register published S.B. 83 as enacted.

New York: Advisory Opinion provides insight on sales tax liability on financial service products

According to an advisory opinion dated April 23, 2013 (TSB-A-13(13)S), the sale of fully integrated enterprise portfolio management support services (“Product A”) sold to financial institutions and other investment managers is not subject to New York sales and use tax.

However, the advisory opinion found that the petitioner must pay sales and use taxes on any taxable inputs used in providing Product A and must collect sales and use taxes on the sale of third-party information services, but the purchase of such third-party information services would be subject to the resale exception for sales and use taxes. In addition, any sale by petitioner of its information services that are used as part of Product A, but which are sold apart from Product A, are subject to sales and use taxes when sold separately.

Petitioner, a financial services firm, provides Product A to its customers which is a fully integrated enterprise portfolio support service that includes several components. Customers use the different components in different proportions without being charged additional fees based on such usage. While Product A is customizable, it always includes the same components, and the only variation is that different customers may choose to access different third-party data sources through Product A. Product A is a labor-intensive service. Petitioner provides Product A through a customized platform which is delivered to the customer by a private network through a web interface. Petitioner charges an implementation fee and a single on-going service fee for Product A.

Under New York tax law, the right to use prewritten software and the sale of information services are subject to sales and use taxes. However, the tax on information services excludes “the furnishing of information which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons.”

The advisory opinion noted that many of the components of Product A would be subject to sales and use tax if viewed separately. Therefore, before determining whether Product A falls into an exception to the New York sales and use tax law, the advisory opinion stated that the threshold question that must be determined is whether petitioner should be viewed as bundling taxable and nontaxable products for a single price or as selling a single, integrated product.

The advisory opinion concluded that Product A is a single, integrated product for three reasons. First, Product A does not come in multiple varieties. Second, customers use the components of Product A in different proportions without incurring additional charges for such usage. Third, the components of Product A are very synergistic. Information about the customer’s activities obtained from one component of Product A is used in another component of Product A.

After making this threshold determination that Product A is a single, integrated product, the advisory opinion then determined that Product A is a nontaxable information technology “operations and management” contract. However, when petitioner sells its daily risk analysis or its analytical calculator components of Product A separately, such sales are taxable information services because they involve the transfer of information and do not qualify for the personal or individual exclusion discussed above.

In addition, the advisory opinion noted that the petitioner only sold third-party information services to the customers upon such customers’ request and that such services were not an invariable part of Product A. Therefore, such sale of third-party information services is subject to sales and use tax, but the purchase by petitioner of such third-party information services would be subject to the resale exception for sales and use taxes. However, any taxable items used in providing Product A would not qualify for such resale exclusion because the items would not be resold, and instead were being used as part of Product A, a nontaxable information service. 

Click here for the text of this advisory opinion. 

North Carolina: First step taken to repeal state estate taxes

On May 8, 2013 the House of Representatives voted 82-37 to pass a bill (H.B. 101) that would eliminate estate taxes entirely in North Carolina. The bill now moves to the Senate for consideration. Eliminating the estate tax is estimated to cost the state $52 million in lost revenue for the next fiscal year, with that number expected to increase over time.

Proponents of the bill claim that it would “unleash economic activity” in the state, align North Carolina’s laws with those of other states in the Southeast, and eliminate a tax imposed on property that a person acquired over his or her lifetime. Tennessee is the only other Southeastern state that still has an estate tax. Opponents argue that this measure would benefit an extremely small number of wealthy individuals at the expense of other public services.

If the estate tax remains in North Carolina for 2013, the amount of an estate’s value that can be excluded for estate tax purposes is $5.25 million. 

Click here to read the text of H.B. 101.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

Susan Millradt McGlone

Jeremy J. Schirra

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.