The Marketplace Fairness Act would require remote sellers, including online businesses, with gross receipts over $1 million, to collect sales tax in qualifying states — even in states where a business has no physical presence. This case, Performance Marketing, Inc. v Brian Hamer (IL 114496), was brought to the Illinois Supreme Court prior to Congressional approval of the Marketplace Fairness Act, which aims to level the playing field between online retailers and brick-and-mortar businesses. At the end of October the Illinois Supreme Court issued its ruling in the case Performance Marketing, Inc. v Brian Hamer (IL 114496). The case concerned a complaint seeking declaratory and injunctive relief in which Performance Marketing claimed that specific portions of the Illinois Public Act 96-1544 were preempted by federal law and violated the commerce clause of the US Constitution. Performance Marketing Association, Inc., filed a complaint seeking declaratory and injunctive relief against the defendant, Brian Hamer, in his capacity as Director of the Illinois Department of Revenue. Plaintiff alleged that portions of Public Act 96-1544, a so-called “click-through” nexus law, were preempted by federal law and violated the commerce clause of the United States Constitution. Illinois sales tax has two parts; the occupation tax which taxes the sale of tangible personal property and the second, use tax. Use tax prevents people from making out-of-state purchases to avoid paying the retailers’ occupation tax. The rates for these taxes are identical. While the responsibility for paying use tax is on the consumer or purchaser, it is difficult to collect tax from individual buyers so collection is imposed on the out-of-state retailer “maintaining a place of business in this State” 35 ILCS 105/2, 3-45 (West 2010). In 2011, Public Act 96-1544 (eff. Mar. 10, 2011) amended the definition of a retailer or serviceman maintaining a place of business in this state to include any retailer/serviceman having a contract with a person located in this State. This meant that they were required to collect tax if they had a contract with any person in Illinois that displayed a link that connected an Internet user to the remote out-of-state web site (also called affiliates). The Act did not make any distinction that sales had to be made to Illinois residents or that the computer server hosting the Illinois affiliate had to be physically located in Illinois. The Act did limit the definition to referral contracts that generated more than[READ MORE…]
The Marketplace Fairness Act, if passed by House and signed by the President, would grant states the authority to force online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – in the same way that local retailers must. However, there is a caveat: states will only be granted this authority after they have simplified their sales tax laws. If passed, the Marketplace Fairness Act, which aims to level the playing field between on-line retailers and brick-and-mortar businesses, could go into effect in the coming months. As it stands now, the bill would require remote sellers, including on-line businesses, with gross receipts over $1 million to collect sales tax in qualifying states — even in states where a business has no physical presence. There is a high level of industry debate over the bill, with e-tailers on both sides of the issue. Will it be the cure-all, making sales tax collection fair and streamlined? Or will it place an undue burden on e-commerce companies and hurt business? The Marketplace Fairness Act requires that states simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy. Specifically, states seeking collection authority have two options for simplifying their sales tax laws. Option 1: A state can join the twenty-four states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA), which has been developed over the last eleven years by forty-four states and more than eighty-five businesses with the goal of making sales tax collection easy. Any state that complies with the SSUTA and has achieved Full Member status as a SSUTA implementing state has the collection authority on the first day of the calendar quarter that is at least 90 days after enactment. Option 2: Alternatively, states can meet the five simplification mandates listed in the bill. States chosing this option must agree to: Notify retailers in advance of any rate changes within the state Designate a single state organization to handle sales tax registrations, filings, and audits Establish a uniform sales tax base for use throughout the state Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to the[READ MORE…]
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