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Proposed Federal Legislation: Marketplace Fairness Act of 2013 aims to level sales tax playing field between online and brick and mortar retailers

The House and the Senate introduced bills (known as the Market Fairness Act of 2013) on February 14, 2013 that, if enacted, would grant states the authority to compel “remote sellers” (i.e., online and catalog retailers) to collect and remit sales tax on sales within the respective state no matter where the seller is located. The effect of this legislation would be to put brick and mortar retailers on equal ground with online retailers with respect to the collection of sales tax. The legislation, however, provides that each state must first have simplified their sales tax laws. Small sellers, those who have total annual gross U.S. remote sales not in excess of $1 million, would be excluded from the purview of the law. 

While this legislation has plenty of opposition to overcome, it also has garnered a critical mass of supporters. One seemingly unlikely supporter of the bill is Amazon, whose Vice President for Global Policy wrote in a letter:

With respect to state sales tax collection, Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers.

With this in mind, I am writing to thank you for your bill, which will allow states with simplified rules to require sales tax collection by out-of-state sellers who choose to make sales to in-state buyers.

This would mean that Amazon, for example, would be required to collect sales tax on all sales, even if it does not have a presence in the relevant state. This example assumes that the relevant state of purchase already imposes sales tax on the relevant sale and the state’s legislature also adopts enabling legislation. There is some debate whether Amazon’s support is due to new and recent state sales tax legislation aimed at requiring Amazon (and similar companies) to collect sales tax while other online retailers have been able to largely avoid this issue.

Regardless, the impact of this legislation is significant. In 1992, the U.S. Supreme Court ruled in Quill Corp. v. North Dakota (504 U.S. 298) that a business must have a physical presence in a state for that state to require it to collect sales tax. However, the court explicitly stated that Congress has the ultimate authority to decide otherwise and can overrule the decision through legislation. If enacted, the Market Fairness Act of 2013 would exemplify such overruling legislation.

Click here for information about H.R. 684.

Click here for information about S. 336.

Click here for Amazon’s letter.

Illinois House proposes permanent income tax increase as pension fix

On February 20, 2013, the Illinois House proposed legislation that would permanently extend a temporary individual income tax increase in order to provide funds for the state’s unfunded pension plans.

Two years ago, the Illinois legislature temporarily raised the state’s flat personal income tax rate from 3 percent to 5 percent for four years beginning on January 1, 2011. This personal income tax rate is scheduled to decrease to 3.75 percent on January 1, 2015 and to 3.25 percent on January 1, 2025.

H.B. 2375 would make the 5 percent personal income tax rate permanent. The bill would also change the state pension funding goal from 90 percent to 80 percent and beginning in fiscal year 2014, would apply a 50-year amortization formula to reach this 80 percent funding ratio.

The revenues generated under this bill would be used to fund the state’s actuarially required contributions to the state's pension plans. The bill also provides that if the state’s total contribution to the pension plans in any fiscal year is less than the proceeds from this income tax increase and certain debt service savings, the extra funds will be provided back to Illinois taxpayers in the form of a refundable tax credit. 

Click here for the text of H.B. 2375.

Michigan enacts a historic resource rehabilitation tax credit

On January 8, 2013, the Governor of the State of Michigan signed a bill creating a historic resource rehabilitation tax credit. Such tax credit permits certain qualified taxpayers with a rehabilitation plan certified after December 31, 2007 (or before January 1, 2008 under the former single business tax) for the rehabilitation of a historic resource for which a certificate of completion has been issued to receive a tax credit equal to 25 percent of certain eligible qualified expenditures incurred during specified time periods. This tax credit is taken in the year in which the certificate of completed rehabilitation of the historic resource is issued.

This tax credit is nonrefundable, but may be carried forward for 10 years, and is reduced by the amount of the federal tax credit, if any, received under Section 47(a)(2) of the Internal Revenue Code for the same qualified expenditures. If the taxpayer’s qualified expenditures are eligible for the federal tax credit, then the taxpayer must claim and receive that credit in order to receive the state tax credit or must enter into an agreement with the Michigan State Housing Development Authority (the “Authority”). If the certificate of completed rehabilitation is issued after December 31, 2008, then the qualified taxpayer may irrevocably assign all or any portion of such state tax credit using certain forms provided by the state.

To be eligible for the historic resource rehabilitation tax credit, a qualified taxpayer must receive certification by the Authority that the historic significance, the rehabilitation plan, and the completed rehabilitation meets several criteria, including that the historic resource is either individually listed on a national or state historic register, or is a contributing resource located within a historic district listed on the national or state historic register, or designated by a local unit of government.

The Authority may inspect the historic resource and may revoke the certification of completed rehabilitation if the rehabilitation was not undertaken as represented in the rehabilitation plan or if unapproved alterations are made during the five years after the credit was claimed.

Unless otherwise agreed with the Authority, for tax years beginning after December 31, 2008, if the certificate of completed rehabilitation is revoked, or the historic resource is sold, less than five years after the historic resource is placed into service, then all or a portion of the tax credit will be recaptured in the year of revocation or sale. 

Click here for the full text of the legislation.

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

David M. Kall

216.348.5812

dkall@mcdonaldhopkins.com

Susan Millradt McGlone

216.430.2022

smcglone@mcdonaldhopkins.com

Jeremy J. Schirra

216.348.5444

jschirra@mcdonaldhopkins.com

Multistate Tax Services

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.

 

 

 

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