Anaheim Loses $21.3M Claim Against Online Travel Companies

Posted on February 3, 2010 by Althea Azeff

In what can only be deemed a rather sizable victory for online travel companies, who have been beleaguered by lawsuits and audits from coast to coast at the city, county, and state level, a case in California gives the usual players joyous respite in their fight.

Los Angeles Superior Court Judge Carolyn B. Kuhl this week overturned a February 2009 administrative ruling (Transient Occupancy Tax Cases, Case No. JCCP4472, Los Angeles County Superior Court, which is not yet publicly published) that would have provided the City of Anaheim up to $21.3 million and back transient occupancy taxes and penalties from online travel companies including the likes of Orbitz, Expedia, Priceline, Hotels.com, and Hotwire – who, according to this ruling, are “mere agents of the operator.”

The alleged back taxes, which were determined based on tax collections from 2000 – 2008, pivoted on the theory of paying tax on the difference between the retail price of a room rental vs. the wholesale price paid by the online travel company to the hotel itself, like most of the cases circulating around the country.

Obviously displeased with the ruling, the City is reviewing its options. 

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Vermont Is Seeking an “Amazon Tax” of Its Own

Posted on February 1, 2010 by Althea Azeff

Introduced by State Representatives John Rodgers, Megan Smith, and Jeffrey Wilson, Vermont House Bill 661 is just the latest in a spate of “Amazon Tax” bills to sweep the nation – bringing the total to five states within nine days of each other.

This latest bill would take effect July 1, 2010, if passed into law.

Like its recent predecessors in other states, and similar to the New York (what I’ve called the “original Amazon Tax” law), North Carolina, and Rhode Island, this bill creates a rebuttable presumption of nexus when a seller is “soliciting business through an independent contractor, agent, or other representative if the person enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise,” and has met a threshold of $10,000 during the preceding tax year.

Seems like the states, one at a time, are lining up to redefine “nexus,” particularly against the backdrop of this tough economy. 

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Colorado Is Seeking an “Amazon Tax” of Its Own (updated)

Posted on January 28, 2010 by Althea Azeff

I wrote just a couple of days ago that it feels like an almost every day phenomenon that yet another state is introducing “Amazon Tax” legislation to broaden nexus net and thus e-commerce sales and use tax revenues.

Now Colorado is joining the list, perhaps motivated in part by its $1.6 billion budget shortfall.

H.B. 1193 (Concerning the Collection of Sales and Use Taxes on Sales Made by Out‐of‐State Retailers) was introduced to create a rebuttable presumption of nexus – as of March 1, 2010 – when, “any out-of-state retailer that has a referral relationship with an affiliate has an obligation to collect tax.”

And for use tax purposes, the bill provides that the DOR “may issue a subpoena to any out-of-state retailer if the out-of-state retailer refuses to voluntarily furnish specific information when requested and may take the out-of-state retailer’s testimony under oath,” under penalty of contempt for not submitting to such.

The threshold portion of this proposed Amazon Tax bill is $10,000 in sales generated by Colorado affiliates to recipients in Colorado during the preceding calendar year.

The ramifications are so strong – and potentially coming so soon – that Overstock.com has already sent a letter to its affiliates that it will “have to sever relationships with Colorado Affiliates before the bill becomes law,” as it did previously when similar legislation prompted it to do so in New York, Rhode Island, and North Carolina.

UPDATE: As of February 3, Sales Tax Buzz is reporting that H.B. 1193 has passed in Colorado’s house.

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Mississippi Is Seeking an “Amazon Tax” of Its Own (updated)

Posted on January 26, 2010 by Althea Azeff

In terms of the broadening of “nexus” for sales and use tax purposes, what a New Year 2010 has been thus far!

It’s starting to feel like on an almost every-day basis I’m reporting on yet another state seeking or having broadened its term “nexus” to encompass Internet sales. The past several days include the likes of New Mexico, Virginia, and now it’s Mississippi.

If enacted, this latest “Amazon Tax” bill (S.B. 2927) will create a rebuttable presumption of soliciting or transacting business in Mississippi by an independent contractor, agent, or other representative if a person enters into an agreement with an in-state resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the person making the sale.

Notably, from my first read of the bill – and what sets this bill apart from the others I’ve been reading lately – there is NO (that’s “zero”) threshold amount stipulated for gross receipts, proceeds, or sales to trigger the assumption. I find that fact downright fascinating (and perhaps a bit scary, too)!

The bill defines a “remote sale” as one of tangible personal property or (defined) digital products ordered by purchasers in-state from someone who receives the order in another state or in a Commonwealth, territory, or other area under the jurisdiction of the United States.

UPDATE: As of February 2, 2010, Mississippi’s S.B. 2927 did not survive in the Senate Finance Committee.

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And Now Virginia Is Seeking an “Amazon Tax” of Its Own

Posted on January 25, 2010 by Althea Azeff

An Amazon-type sales and use tax bill has been introduced in yet another state. This time, it’s the Commonwealth of Virginia.

Introduced January 21st by Senator Emmett W. Hanger, Jr. (R—Augusta) and backed by the Virginia Retail Federation (the legislative arm of the Retail Alliance and the Retail Merchants Association), the bill (S.B. 660), if enacted into law, is speculated to grab some $36 million of otherwise lost revenues for the Commonwealth within two years.

The bill creates a rebuttable presumption of nexus for Internet sales purposes, in this instance encompassing the language, “whether by a link on an Internet site or otherwise” while carefully defining the term “dealer” to include a broad cast of actors and for transactions in excess of $10,000 in the preceding four quarterly periods.

Such dealer presumed to be soliciting or transacting business in Virginia would, naturally, be required to register for retail sales and use tax purposes. 

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Now New Mexico Is Seeking an “Amazon Tax” of Its Own (updated)

Posted on January 20, 2010 by Althea Azeff

Catching up with other states seeking or having broadened the term “nexus” to encompass Internet sales, the New Mexico House of Representatives recently introduced H.B. 50, its own version of an “Amazon Tax” to establish the presumption of taxability for certain sales of goods and services made over the Internet.

Should the bill eventually be signed into law, it would provide for a rebuttable presumption that a person with a business without physical presence in New Mexico is engaging in business in New Mexico (and has nexus with New Mexico) if:

(i) that person enters into an agreement with a resident of the state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by link or an Internet Web site or otherwise, to that person; and

(ii) the cumulative gross receipts from sales by that person to customers within New Mexico who are referred to that person by all residents with an agreement exceed $10,000 in the preceding 12-month period ending on June 30 of each year.

How to rebut this presumption? With proof that the resident did not engage in any solicitation in New Mexico that would satisfy the U.S. Constitutional nexus requirements on behalf of the person presumed to be engaging in business in the state.

UPDATE: H.B. 50 was tabled by the House Business & Industry Committee within 10 days of its introduction.

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Michigan’s Mandates Costing Its Localities Astounding $2.2B Each Year, Probably Unconstitutionally

Posted on January 20, 2010 by Althea Azeff

Culminating two years of research, the Michigan Commission on Legislative Mandates recently published its 87-page final report demonstrating that Michigan’s unfunded or underfunded mandates are requiring an astounding minimum of $2.2 billion per year from localities. 

The cost to comply with Michigan state mandates – which run the gamut from electronic fingerprinting of criminals to student tests and the use of electronic voting machines in local elections, among many, many others – the primary concern (aside from cost, which so many localities in so many states face) is that Michigan’s lack of provision of funds could constitute a direct violation of the 1978 voter-approved Headlee Amendment to its state Constitution. The amendment reads, in part, “The state is prohibited from requiring any new or expanded activities by local governments without full state financing.”

Pretty clear language, right? Then how could hundreds of post-1978 requirements, enumerated in this lengthy report, have gone unfunded (or, at the very least, underfunded) by Michigan?

Some of the more pricey mandates (as found in the “Exhibits” section of the lengthy report) include a $32 million settlement for a Department of Human Services foster care-related lawsuit, $1.1 – $1.7 million for new signage required in construction zones; Native American tuition waivers at a cost of $1.87 – 2.8 million; the use of optical-scan voting machines at an $11 – $16 million price tag; and publication of notices in newspapers at the price of $3 – $6 million per year. And how about the $1.461 billion per year retirement plan for employees of public school districts?

Although highly detailed, dense, and lengthy, Michigan-ers may be well served to read this report and write their local congressional leaders for action on the constitutionality of localities as funding sources per the Headlee Amendment. 

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NY publishes a (truly) must-read SUT booklet

Posted on January 15, 2010 by Althea Azeff

Hot off the presses this month, available as a free 16-page (not inclusive of the “Notes” and other superfluous pages) .pdf file here, the “Purchaser’s Obligations to Pay Sales Use Taxes Directly to the Tax Department: Questions and Answers” (Publications 774 of 1/10) could be the New York State Department of Taxation and Finance’s best read ever! And I only wish I was kidding.  :- )

I’m not going to write much about this informational booklet; I just want to point readers, in particular business owners, to it as FYI. (Tip: If you take the teachings of this booklet verbatim, you just might walk away believing that you don’t owe any use tax for online purchases totaling under $1,000 before shipping and handling charges.) And if read in tandem with the Department’s “New York State and Local Sales and Use Tax Quick Reference Guide” from February 2009, found here, you might just get the best basic-level primer on the issue available by any U.S. state (redundant, I know, but true).

Happy reading. 

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Yet again, no SUT refund for Home Depot

Posted on January 11, 2010 by Althea Azeff

As the economy continues to struggle along, courts are clogged with cases concerning uncollectible credit card accounts. One such case recently caught my eye, this one out of the New York Supreme Court, Appellate Division, particularly in its ruling denying Home Depot a sales and use tax refund on such default accounts that were financed by third-party finance companies. 

Reading the findings of this case felt like déjà vu to one out of the New Jersey Superior Court, Appellate Division in late October 2009, as covered here (but using somewhat different legal reasoning).

The case, Home Depot USA, Inc. v. Tax Appeals Tribunal, New York Supreme Court, Appellate Division, Third Judicial Department, No. 506461 (December 31, 2009), had to do with whether Home Depot U.S.A., Inc. was entitled to a refund of New York sales tax it collected and remitted between 1997 and 2003, based on store purchases made with its private label credit card – by consumers who ultimately proved their inability to pay off their account balances.

Like the court’s reasoning in New Jersey, this New York court essentially ruled against Home Depot most notably, among several other reasons, because it did not bear the risk of loss under its agreements with the third-party finance companies:

“Notably, inasmuch as the debts in question were owed to the finance companies and petitioner [Home Depot] was paid in advance by the finance companies, petitioner did not actually have any uncollectible receipts. Indeed, petitioner recorded accounts receivable from the finance companies, not from the individual customers. Nor did petitioner take the uncollectible debts owed by the customers as a deduction on its federal income tax returns. Instead, petitioner deducted the transaction service fees charged by the finance companies.”

Yet again: too bad, so sad, Home Depot. 

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The Online Hotel Room Tax Battle Rages In Florida and Kentucky

Posted on January 5, 2010 by Althea Azeff

Two federal courts recently (and only seemingly, I would contend) ruled on the side of online travel companies, producing somewhat surprising results in a long line of similar cases we followed throughout 2009 (see here, here, here, here, and here). 

One, a case brought to the U.S. District Court, Southern District of Florida, by Monroe County, Florida (Monroe County v. Priceline.Com, Inc., U.S. District Court, Southern District of Florida, No. 09-10004-MOORE/SIMONTON , December 17, 2009) and the other, a case brought to the U.S. Court of Appeals for the Sixth Circuit by two Kentucky counties (Louisville/Jefferson County Metro Government v. Hotels.com, LP, U.S. Court of Appeals for the Sixth Circuit, No. 08-6302/6303, December 22, 2009), call to mind that the e-commerce tax battle rages strong, in these cases having to do with online hotel bookings, with different results throughout the country and very few “bright line tests” to be able to predict the outcomes.

Monroe County brought its case on behalf of a certified class of Florida counties against Priceline.com, Expedia, Orbitz, and several others for failure to remit what is referred to there as “county tourist development taxes,” as well as resort taxes. The federal court granted the travel companies’ motion to dismiss the counties’ claim for permanent injunctive relief while denying the travel companies’ motion to dismiss other claims (i.e. the travel companies won this round) including, among others, that the ordinance imposing the tax was ambiguous and that the online travel companies were unjustly enriched by keeping tax receipts paid by consumers. In other words, the federal judge has left open the door for Monroe County (on behalf of other Florida counties) to go after the online travel companies.

What is the real verdict here, to my mind? It’s that the online companies absolutely cannot breathe easily yet vis-à-vis these Florida counties, not to mention they have the State’s Attorney General going after them, too. My bet? Florida, at both the state and county level, is going to kick some online travel company tax a$$ in the end.

* * * * * * * * * * * * * * * * * * * * * *

But I come to a very different conclusion regarding the situation in Kentucky, and therein we find a wonderful example of just how unsettled these issues remain throughout the country.

The U.S. Court of Appeals for the Sixth Circuit affirmed in late December a district court’s decision to dismiss claims by two counties that various online travel companies were in violation of ordinances imposing a transient room tax.

In a not unfamiliar story, the counties alleged that the online companies failed to pay tax on the difference between the retail rate paid by customers and the wholesale, lower rates paid by the online companies, an argument that (for example) the Florida Attorney General would say unjustly enriches the online travel companies.

But in a tricky and somewhat surprising (to me) opinion, the Sixth Circuit has ruled that the online companies’ lack of ownership and/or physical control over the rented hotel rooms makes them unlike “similar accommodations businesses” within the laws’ meaning of that term, drawing a line between brick-and-mortar hotels and online hotel room resellers. In another important ruling among several in this case, it said that the online companies lack physical presence.

Essentially, the Sixth Circuit is refraining from becoming activist on the online hotel sales tax issue and is pointing to the legislature to make any and all changes to enable the localities to get what they are looking for (in particular, tax on the higher retail rate of the room sales). 

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It’s January 1st – Wake Up & Note the Ohio Sales Tax Sourcing Rules!

Posted on January 1, 2010 by Althea Azeff

Wake up! It’s January 1, 2010 and Ohio has turned its sourcing rules back to origin-based from destination-based for all intrastate sales of tangible personal property and services. No, it’s not your hangover talking; it’s the dizzy feeling that results from trying to stay compliant.

Effective today and with official Department of Taxation guidance provided in late December here and in further detail here, Ohio vendors need to either switch back or keep sourcing from origin if the shift was never made for intrastate sales.

Companies that converted to destination-based and were compensated for doing so may qualify for a rather generous New Year’s gift. Ohio provides, “Recognizing that these changes may require programming changes or training, the Department of Taxation will not impose penalties on those vendors that are required to change their method of sourcing as a result of H.B. 429, so long as those changes are made by April 1, 2010.”

For those companies that haven’t yet outsourced the numerous and onerous tasks associated with sales tax compliance, it might be high time to considering doing so. 

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The Sales Tax Buzz 5 Psychic Predictions in Sales & Use Tax Developments for 2010

Posted on December 28, 2009 by Althea Azeff

Now that we’ve looked back on some of the top sales and use tax stories of 2009 in each of this month’s Sales Tax Buzz postings, it’s time to make some predictions for 2010, as follows: 

A minimum of 5 additional states will flat out ignore or at least test the limits of Quill to assert nexus without physical presence in their states;

A minimum of 3 additional states will become full members of the SST, one of which will start with the letter “M”;

M&A activity will heat up – substantially – by Q3 2010, with strong hints of such by mid Q2;

A minimum of 4 states will devise ways to attack and overcome reverse audits; and

The Main Street Fairness Act will be introduced both in the U.S. House and Senate, garnering never-before imagined media attention and citizen support on both sides of the e-commerce taxation debate (okay, this one is just a wee bit biased, I must admit).

*** Happy New Year From Sales Tax Buzz, Wishing You a Prosperous and SUT-Compliant 2010. ***

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