The folks over at McDermott Will & Emery and the 'Inside SALT' blog made me aware of the "No Regulation Without Representation Act of 2016" (H.R. 5893). The bill was introduced by Congressman Jim Sensenbrenner (R-Wis.).
The bill would require a person to have a physical presence in a state before the state can impose a sales or use tax collection or reporting requirement, an assessment, or treat the person as doing business (having 'nexus') in the state.
In essence, this bill is a glimmer of hope for remote sellers against the onslaught of state nexus expansion laws that have been enacted over the past few years, and the current litigation in South Dakota and Alabama where states are attempting to impose collection obligations on businesses without a physical presence.
The bill defines physical presence to include:
- owning or holding a leasehold interest in, or maintaining real property such as a retail store, warehouse, distribution center, manufacturing operation or assembly facility;
- leasing or owning tangible personal property (other than computer software) of more than de minimus value in the state;
- having one or more employees, agents or independent contractors present in the state who engage in specific solicitations toward obtaining product or service orders from customers in that state, on behalf of the person;
- having one or more employees or independent contractors present in the state who provide on-site design, installation, or repair services on behalf of the remote seller;
- maintaining an office in the state at which it regularly employs three or more employees for any purpose.
According to the bill, 'physical presence' does NOT include:
- referral agreements with in-state persons who receive commissions for referring customers to the seller;
- having a presence in the state for less than 15 days in a taxable year;
- product delivery in-state by a third-party;
- Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.
If the Act gains traction and is actually enacted, it would apply to calendar quarters beginning on or after January 1, 2017.
It is too early to tell if this bill will actually go anywhere, but it is nice to see a bill like this get introduced.