Model Online Sales Tax Reporting Law to Get Fresh Look

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By Tripp Baltz

A Multistate Tax Commission committee will revisit its model uniform statute for reporting and notice requirements on remote sellers that don’t collect and remit state sales and use taxes.

The MTC Uniformity Committee decided March 9 to relaunch work on its Model Sales and Use Tax Notice and Reporting Statute, which it set aside in May 2012 pending a decision over Colorado’s reporting and notice law. In December 2016, the U.S. Supreme Court refused to hear the Direct Marketing Association’s (now Data & Marketing Association) appeal of an earlier ruling by the U.S. Court of Appeals for the Tenth Circuit that the Colorado law is constitutional ( Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, petition for review denied 12/12/16 ).

Colorado and the DMA recently entered into a settlement agreement under which DMA members will begin complying with Colorado’s reporting and notice law effective July 1, and will owe the state no penalties for past periods.

The MTC model statute essentially incorporates the elements of Colorado’s law, approved by the state General Assembly in 2010—out-of-state vendors that don’t collect and remit taxes must provide reports on sales to the DOR, as well as send similar reports to buyers and provide them with notice that they may owe sales and use taxes on purchases. A handful of states have introduced bills to create similar regimes this year.

Where to Report

Sheldon Laskin, MTC counsel, told the Uniformity Committee March 8 that a staff review of the model statute concluded it could be adopted in its current form—with one addition. Because the model law is intended for adoption in multiple states, it might be appropriate to consider adding a provision to clarify where a non-collecting retailer should make the required reports if it is unclear where the purchased property will be used.

Phil Horwitz, tax policy director for the Colorado Department of Revenue, said the Colorado law requires the vendor to report to the state where the gift is shipped, with the billing address as a fallback only in cases of digital goods. He said the question merits further consideration, and he agreed to chair a work group of the Uniformity Committee to examine the model statute.

Partnership Changes

Also March 8 the Uniformity Committee directed its partnership work group to take up a proposal from New Mexico to consider model entity-level tax on partnerships, LLCs and business entities.

Helen Hecht, MTC general counsel, gave the committee a comprehensive update on the group’s focus on recent federal and state changes in tax law governing partnerships. Most of the presentation focused on changes triggered by the Bipartisan Budget Act of 2015, which gives the Internal Revenue Service the authority to audit and assess complex partnerships at the partnership level.

The new partnership audit regime has big implications for states, which already have statutes and regulations requiring taxpayers to report federal adjustments, along with related state taxes due. As the IRS works to develop new regulations, the MTC work group is focused on best practices for states to adopt in areas that will affect them, such as how to calculate state-level imputed underpayment of partnership taxes.

When Receipts Are Lacking

The committee also received an update from a work group focusing on changes to Section 18 of the Multistate Tax Compact Article IV, the Uniform Division of Income for Tax Purposes Act, necessitated by the MTC’s recent adoption of market-based sourcing rules. The Section 18 work group is examining how state taxing agencies should handle issues of distortion in business income apportionment.

In recent months, the group has been meeting once a week to hammer out a proposed model regulation for apportioning the income of entities that lack “receipts” derived from transactions and activities in the regular course of business. The rules are necessary because many states have eliminated the property and payroll factors from their apportionment formulas.

“That means it’s possible that a non-operational subsidiary could have apportionable base income, but no apportionment factors,” said Bruce Fort, MTC counsel tasked to the work group. The group believes the draft model rule, which would try to avoid “nowhere assignment” or “double assignment” of receipts, is nearing completion, Fort said.

Fort said the group also has been working on language for a provision similar to one in the new market-based sourcing language in the compact, Article IV, Section 17, for “throwing out” gross receipts in situations where the regulation would otherwise assign those receipts to a jurisdiction in which the taxpayer is not taxable.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

The agenda for the March meeting of the MTC Uniformity Committee is http://www.mtc.gov/Uniformity/Uniformity-Committee/2017/Uniformity-Committee-Meeting-3-2017

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