On January 1, 2015, the EU’s new approach for charging and collecting VAT on B2C sales of e-services and digital goods begins. The key to the approach is that all businesses will charge based on the customer’s location (destination basis). That makes sense for a consumption tax, but has its challenges. One key one is knowing where the customer is, which is not always easy to determine for digital goods relative to physical goods.

One administrative simplification is the Mini One Stop Shop or MOSS. This allows a business to register in one country for filing purposes. The business still has to collect the appropriate VAT for the country where the consumer is, but rather than quarterly filing in each country, the business just files in the MOSS country. That country makes sure the funds get to the right country (and handles the currency translation since not all EU countries use the Read More

All of the energy and focus on the Marketplace Fairness Act (MFA) has lulled many online sellers into a false belief that they do not need to collect retail sales tax on their online sales until Congress takes action on the MFA. What many online sellers forget is that states can still require online sellers to collect retail sales tax if the online sellers have physical presence nexus in a state. Further, this physical presence nexus need not be necessarily connected with their online sales.

Recently, I have worked with a number of companies facing significant tax exposure for uncollected retail sales tax on their online sales. Although these sales are generated exclusively from customers developed over the Internet, these companies failed to recognize that physical presence of their employees or representatives pursuing wholesale sales Read More

It is difficult these days to read an article about sales tax without coming across issues with online companies such as Amazon. For those of you that do not spend most of your day hunting down interesting sales tax articles, please just take my word for it. In fact, before Congress right now is an attempt to nationalize sales tax collection by passing a law known as the Marketplace Fairness Act (MFA). This law would essentially cause most online retailers, like Amazon, to collect tax in every jurisdiction to which they sell. Not surprisingly, and despite the literally thousands of articles discussing the MFA and online sales tax collection, most consumers and many commentators still are not understanding how a sales tax works.

By way of background and for review for many of you, a sales and use tax work Read More

TaxConnections Blogger Annette Nellen Posts about revenue generationIn the past few months, I have been interviewed or heard stories about state and local government practices to generate revenue in new and unusual ways. For example, some California cities are willing to enter agreements with vendors to locate a sales office in their borders and receive a return of some of the sales tax generated. I think the opportunities for doing this will increase when/if the Marketplace Fairness Act passes. With the MFA, more vendors will be required to collect California sales tax despite the lack of a physical presence in the state. So, why not locate some small office in a city that is willing to rebate some of the tax collected for the city to the vendor?

Another instance is a government hiring a third party to help it collect taxes owed. While that might seem innocent enough – outsourcing, it raises a variety of issues. There is a nice write-up of many of these issues in a Action News Alameda article I was interviewed for a few weeks ago – “City of Alameda Moves Forward With Contingency Fee Business Tax Audit Effort,” David Howard, 7/30/13.

The tax sharing is problematic as this is not what we pay taxes for. Taxes are to help fund government operations. When people learn that part of their taxes go into the coffers of a vendor, they will think that the government doesn’t really need the revenue so why not lower rates and will be puzzled about what the purpose of tax is. This is also a race to the bottom as local governments reduce their hard to generate tax revenues and compete against each other for tax dollars. Read More

When the Senate overwhelmingly passed the Marketplace Fairness Act (“MFA”) (S. 743) on May 6, 2013 tax professionals and other CPAs naturally took notice. Many journalists and bloggers have taken notice, too, writing prolifically about the so-called “Internet sales tax.” This is the closest such legislation has come to being enacted, and so naturally it is newsworthy. However, many in their excitement have begun talking about the passage of this Act as if it is a foregone conclusion. So far the MFA has passed the Senate. But some say it has a tough road ahead in the House and that it may even be dead-on-arrival in the Republican-controlled House.

Will it pass? We don’t know and can’t predict. The only thing we can be sure of is that whether the MFA passes or not, sales tax nexus is and will continue to be a very relevant, complex issue demanding attention by businesses large and small and their CPAs.

False Belief Number One: If The Marketplace Fairness Act Passes, Everyone Will Have Nexus Everywhere. Nexus Will Be Obsolete.

We are actually hearing this statement in one form or another from many CPAs and other professionals. While we could agree that the physical presence aspect of nexus has been under pressure since the Quill case and that the pressure appears to be increasing every year, we can not agree that nexus would be obsolete. The MFA still has many questions that need to be answered. For example, if the MFA does pass in the House, what modifications will be made and what will the final version look like? Will all the states participate? What will be the minimum threshold? Read More