Pennsylvania joins the growing number of states introducing legislation to have click-through and affiliate nexus provisions targeting remote sellers, requiring them to collect Pennsylvania sales tax on their sales of tangible personal property to Pennsylvania customers.
Many of the provisions in the proposed legislation are similar to those in other states. The click-through provision has a rebuttable presumption and a threshold of $10,000 in referred Pennsylvania sales from Pennsylvania residents who are compensated by click-through agreements with the remote seller. Should the legislation pass, remote vendors who have agreements with Pennsylvania residents and meet this threshold shall be presumed to be regularly or substantially soliciting orders through an independent contractor or other representative. The presumption may be rebutted by proof that the residents did not engage in any activity that has enabled the remote seller to build or maintain a marketplace in Pennsylvania. The proof can consist of statements written in good faith from the Pennsylvania residents with whom the remote seller had an agreement.
The proposed legislation also states that a person will be presumed to be “maintaining a place of business in this Commonwealth” if an affiliated person is subject to sales and use tax in Pennsylvania and if:
- the person sells a similar line of products as the affiliated person under the same or similar business name;
- the affiliated person uses its in-state employees or in-state facilities to advertise, promote or facilitate sales by the person to consumers;
- the affiliated person maintains an office, distribution facility, warehouse or storage place or similar place of business to facilitate the delivery of property or services sold by the person to the person’s consumers;
- the affiliated person uses trademarks, service marks or trade names in this Commonwealth that are the same or substantially similar to those used by the person; or
- the affiliated person delivers, installs, assembles or performs maintenance services for the person’s purchasers within this Commonwealth.
The term “affiliated person“ means the member of the same “controlled group of corporations” as defined in Sec. 1563(a) of the IRS code of 1986. Similar to the click-through provisions, the affiliate provision has a rebuttable presumption that can be addressed by demonstrating that the affiliated person’s activities in the state are not significantly associated with the remote seller’s ability to establish or maintain a market within Pennsylvania.
In addition, the proposed legislation also includes a section requiring remote sellers who are not required to collect Pennsylvania sales tax to provide notification to their Pennsylvania customers that tax is due on their purchases unless some exemption applies or the purchase is nontaxable. Furthermore, the notification requirements will not be met until the customer acknowledges he or she has read and understood the notification prior to the completion of the sale. The notification shall substantially read as follows:
The Commonwealth of Pennsylvania requires payment of sales and use tax on purchases of tangible personal property. While a retailer may collect that tax on the purchaser’s behalf, (Name of Company) does not collect and remit sales tax for Pennsylvania residents. Accordingly, the Commonwealth of Pennsylvania requires you to remit the tax directly to the Pennsylvania Department of Revenue on applicable purchases. You can find information on how to pay this tax at www.revenue.state.pa.us. Failure to pay this tax on applicable purchases is a violation of state law and could results in fines, penalties and interest for each purchase.
I acknowledge that I have read and understand this sales and use tax notice.
Furthermore, the proposed legislation contains a reporting requirement. While the reporting requirement is not as onerous as the Colorado law that was struck down in federal court last year, it does impose similar reporting requirements to Pennsylvania customers and the Pennsylvania Department of Revenue.
If the provision should pass, it is not known how Pennsylvania will be able to enforce such reporting requirements on remote sellers who are not required to collect Pennsylvania sales tax, given the rejection of similar requirements by a federal court last year in The Direct Marketing Association v. Huber, No. 10-cv-01546-REB-CBS (D. Colo. 2012).
Finally, the proposed legislation forbids remote sellers to advertise that purchases for taxable use in Pennsylvania are tax-free or to use similar language implying that the purchase is nontaxable.
We will continue to provide update via this website as the legislation progresses.
© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.