GAME ON: Louisiana Department of Revenue and Other State Agencies Look to Even the Score on Employee Misclassification

By Andre Burvant on Posted in Jones Walker Announcements, Tax News

The Louisiana Department of Revenue (DOR) has joined forces with other Louisiana agencies to crackdown on employee misclassification and failure to withhold payroll taxes. The GAME ON (Government Against Misclassified Employees Operational Network) Task Force is an interagency network made up of members of the Louisiana Workforce Commission’s (LWC) Unemployment Insurance and Office of Workers’ Compensation divisions and the DOR. The task force also collaborates with the IRS and the U.S. Department of Labor’s (DOL) Wage and Hour Division.

Most employee misclassifications involve employers improperly labeling employees as independent contractors. In an October 25, 2017 press release, the LWC touted that it has led the nation in audit-based discoveries of misclassified employees over the last several years and plans to ramp up its efforts in 2018.

After the task force determines that an employer has misclassified employees, the DOR can readily determine if the employees paid income tax on their wages. If not, the DOR can seek to collect the tax from the employer, whose failure to withhold payroll taxes in accordance with the law renders the employer responsible for those taxes. The employer’s liability, however, is not limited to back taxes. The DOR can seek to collect interest and both delinquent payment penalties and delinquent withholding penalties.

The DOR has all of its tax collection remedies at its disposal, including filing lawsuits. On January 30, 2018, the DOR issued a press release serving notice to employers that the DOR recently filed three lawsuits against businesses it accuses of evading taxes by not withholding and remitting payroll taxes from their employees’ earnings. The lawsuits seek almost $250,000 in taxes, penalties and interest. The DOR says several other audits are currently in progress.

The GAME ON Task Force also has some non-tax related focuses. Each member of the GAME ON Task Force has different interests in the misclassification of workers as independent contractors. For example, the LWC wants to ensure that the state’s Unemployment Insurance Trust Fund is being properly funded. Companies do not pay into the Trust Fund for independent contractors. The LWC’s Office of Workers’ Compensation governs whether a company is maintaining adequate workers’ compensation coverage for its employees, and if a company is classifying a worker as an independent contractor, it is likely not maintaining adequate coverage. Finally, the DOL has an interest in ensuring that workers are being paid minimum wage and overtime, which is often not considered when using independent contractors.

This continued focus by the GAME ON Task Force is important to any company that regularly uses independent contractors. All companies should review their use of independent contractors to ensure they are not being misclassified. As an example, in making its determination as to whether an individual is actually an employee, the LWC considers whether the individual is subject to the direction and control of the company, whether the services of the individual are within the usual course of business of the company and are performed at the company’s usual place of business, and whether the individual has his/her own established business independent of the company’s business.

For more information, please contact Andre B. Burvant or David K. Theard.

COST Issues Call to Action…: Tell Congress to Pass the Mobile Workforce Act As Soon As Possible

By Joseph Landry on Posted in Legislation, Tax News

A call to action from our friends at COST:

COST and the Mobile Workforce Coalition urge you and your company leadership to send letters during the week of March 5 asking the House and Senate leadership to enact the Mobile Workforce State Income Tax Simplification Act as soon as possible. The Coalition is working to add the Mobile Workforce legislation to one of the funding bills currently before Congress. The House version of the Mobile Workforce Act (H.R. 1393) passed the full House via voice vote on June 20, 2017, and the Senate version (S. 540) currently has 60 Senate cosponsors, including Senators John Thune (R-SD) and Sherrod Brown (D-OH) as lead sponsors. Please use this sample letter as a template to draft a letter on your formal letterhead to the following four offices, plus to your home-state Senators. Of course, feel free to tailor your letters to reflect your company’s unique issues, including number of employees affected, costs of compliance, and other relevant and applicable data.

  • House Speaker Paul Ryan
    H-232 The Capitol
    Washington, DC 20515
    SEND EMAIL TO: Casey Higgins, Assistant to the Speaker for Policy, casey.higgins@mail.house.gov
  • House Majority Leader Kevin McCarthy
    H-107 The Capitol
    Washington, DC 20515
    SEND EMAIL TO: Brandon Consolvo, Senior Policy Advisor, brandon.consolvo@mail.house.gov
  • House Majority Whip Steve Scalise
    H-329 The Capitol
    Washington, DC 20515
    SEND EMAIL TO: Dan Sadlosky, Policy Director, dan.sadlosky@mail.house.gov
  • Senate Leader Mitch McConnell
    S-230 The Capitol
    Washington, DC 20515
    SEND EMAIL TO: Brendan Dunn, Policy Advisor & Counsel, brendan_dunn@mcconnell.senate.gov

The Mobile Workforce Act would greatly reduce the current nonresident personal income tax compliance burden imposed both on employees who travel for short periods outside of their state of residence and on their employers by setting a uniform 30-day threshold. COST and over 300 companies and organizations in the Mobile Workforce Coalition have worked tirelessly for over 10 years to get this common sense and bipartisan solution enacted. COST and the Mobile Workforce Coalition will also send letters to the Congressional leadership next week to ask them to place the Mobile Workforce Act on any viable legislative vehicle and support its passage as soon as possible. You can also use this grassroots portal on the Coalition website to send letters of your own to your Senate offices.

For more information or help with getting your message to the Congress, please contact Aziza Farooki or Liz Malm with the Mobile Workforce Coalition.

 

Help us kick off the COST Sales Tax Conference at the historic New Orleans Rock ‘n’ Bowl

By Jones Walker LLP on Posted in Jones Walker Announcements

Join us as we kick off the COST Sales Tax Conference at the world famous New Orleans Rock ‘n’ Bowl – a truly unique New Orleans landmark not to be missed! This N’awlins institution is famous for its food, drinks, music, dancing, and of course, bowling. Whether you are looking for some classic New Orleans food, great music, or are in need of a few bumpers for your bowling game, come on out and kick back with fellow COST registrants for a great time! Laissez les bons temps rouler!

Admission open to all Council on State Taxation Sales Tax Conference participants. 

Questions or to RSVP: cfarley@joneswalker.com

 

Louisiana Governor Calls Special Legislative Session to Address Tax Issues and Looming “Fiscal Cliff”

By Matt Mantle on Posted in Legislation, Tax News

It’s now official.  Louisiana Governor Jon Bel Edwards (D) has finally released his Call for a special legislative session to begin February 19th and conclude March 7th.  The Call, released today, February 9, 2018, is intended to allow the Louisiana legislature to address the long-term issue of its current taxing and spending structure, as well as the short-term issue of the $1 billion “fiscal cliff” looming in the upcoming fiscal year.

A copy of the Governor’s Call can be found here.

In a corresponding “Plan of Action,” … the Governor has again proposed taxing measures consistent with those previously recommended by the legislative Task Force on Structural Changes in Budget and Tax Policy.

It was anticipated that Governor Edwards would call a special legislative session in either February 2018 or later in 2018 (after the regular legislative session) to solve the fiscal cliff and again discuss long-term tax reform.  The Governor previously cautioned, however, that he would not call a special session unless he felt those issues could (and would) be resolved following discussions with legislative leadership.  Is seems now the Governor is confident that there is enough of a “growing consensus” among the legislature to warrant a February special session.

The fiscal cliff in next year’s budget results from the scheduled roll-off of incoming revenue from the additional 1% “clean penny” state-level sales tax, as well as the sunset of several temporary haircuts to various exemptions and credits.  These measures, which were put in place during the 2015 and 2016 legislative sessions, were considered “temporary” while the legislature worked toward longer-term taxing and spending reform.

The 2018 regular session is a non-fiscal session; thus, tax legislation is not germane.  As a result, the Governor (or the legislature) is required to call a special session either before or after the regular session if any new tax bills are to be entertained by the legislature in 2018.  If no special session was called, then the legislature would have been forced to address the upcoming fiscal cliff solely with budget cuts.

In a corresponding “Plan of Action,” the Governor explains that he is “not calling for net new tax revenue,” but rather is advocating to replace the temporary revenue measures enacted in 2015 and 2016.

The Governor’s issued Plan of Action is taken directly from his draft 2018 Tax & Budget Priorities (see prior post here), and the Governor has again proposed taxing measures consistent with those previously recommended by the legislative Task Force on Structural Changes in Budget and Tax Policy.

The Governor’s self-described “aggressive but balanced approach” to address the upcoming fiscal cliff and enact long-term tax reform includes:

  • Making permanent reductions to tax credits, deductions and rebates (Act 109, Act 123, and Act 126, of the 2015 regular session).
  • Compressing individual income tax brackets and reducing the excess itemized deduction to 50%.
  • Cleaning all four pennies of the state-level sales tax based on the currently available “clean penny” exemptions.
  • Taxing business utilities at 4% (full state-level permanent sales tax rate) and industrial utilities at 2% (50% state-level rate).
  • Expanding the sales tax to certain services.

Specifically, the Governor’s current Plan of Action proposes the following:

Make Permanent Reductions to Tax Credits, Deductions, and Rebates

  • Act 109 of the 2015 regular session provided limitations on the credit for taxes paid to other states to those states that provide a similar tax credit for Louisiana income taxes paid on certain sources of income.  These limitations would be made permanent.
  • Act 123 of the 2015 regular session temporarily reduced the value of several corporate income tax exclusions and deductions, including depletion and dividend income.  These would be made permanent.
  • Act 126 of the 2015 regular session temporarily reduced the value of the following rebate programs:  Quality Jobs Program, Corporate Headquarters Relocation Program, and the Competitive Projects Payroll Incentive Program.  These reductions would be made permanent.

Compress Individual Income Tax Brackets and Reduce Excess Itemized Deductions to 50%

  • Current law allows and individual income tax deduction for 100% of excess federal itemized personal deductions.  Excess federal itemized personal deductions are defined as the amount by which the federal itemized personal deductions exceed the amount of the federal standard deduction.
  • The Governor’s proposal would reduce the amount of the deduction from 100% to 50%.  The proposal would also compress individual income tax brackets.

Clean All Four Pennies of State-Level Permanent Sales Tax Based on Currently Available “Clean Penny” Exemptions

  • The Governor’s proposal would expand the sales tax base on the permanent 4% state-level sales tax (the “permanent pennies”) by mirroring the current sales tax base of the temporary additional 1% “clean penny” state-level sales tax.

Tax Business Utilities at 4% and Industrial Utilities at 2%

  • Under Act 25 of the 2016 first special session, business utilities are currently subject to state-level sales tax at the rate of 3% through June 30, 2018 and 1% through March 31, 2019.
  • Business utilities are subject to the 1% “clean penny” state-level sales tax through June 30, 2018, pursuant to Act 26 of the 2016 first special session.  The total state-level sales tax rate for business utilities through June 30, 2018 is 4% and then 1% through March 31, 2019.
  • The proposal will tax business utilities at 4% and create a “special rate” for industrial users at 2%.

Expand Sales Tax to Services

  • The Governor’s plan would expand the sales tax base (likely the state and local sales tax base) to include services such as:
    • Debt collection services
    • Insurance services
    • Data processing services (similar to Texas)
    • Information services (similar to Texas)
    • Cable and satellite services
    • Repairs to real property (immovables)

As previously noted, 2019 is a gubernatorial election year in Louisiana. Therefore, budget issues, tax reform, and the raising of taxes will surely continue to be infused with a heavy dose of politics from all sides.

The Jones Walker SALT Team will continue to closely follow – and report on – these legislative developments as they occur.  The Louisiana and multistate business community should follow the upcoming special session carefully and be prepared to act with regard to any new legislation proposed this year by the legislature.

SALTy and Sweet at Washington D.C. Mardi Gras

By Jones Walker LLP on Posted in Jones Walker Announcements

Jones Walker SALT Team members Bill Backstrom and Jay Adams danced the night away at the Washington D.C. Mardi Gras Mystick Krewe of Louisianians Carnival Ball. This year’s theme, ‘One Love for Louisiana’ marked the organization’s 66th year of celebration.

Bill and Jay also had the pleasure of meeting Louisiana Strawberry Queen XLVII, Gina Recotta.

Fletcher Presents at MS Tax Institute

By Jones Walker LLP on Posted in Jones Walker Announcements, Presentations

John Fletcher, a partner on the State and Local Tax team, conducted two joint presentations with officials with the Mississippi Department of Revenue at the Mississippi Tax Institute on December 7, 2017 in Jackson, Mississippi. John’s sessions updated attendees in the areas of multi-state taxation of pass-through entities, potential Mississippi consequences of the recent federal income tax changes, and Mississippi sales and use tax regulatory developments.

Louisiana Governor Provides Draft of 2018 Tax & Budget Priorities to Address Looming Fiscal Cliff and Long-Term Tax Reform

By Matt Mantle and Jay Adams on Posted in Legislation, Tax News

Louisiana Governor John Bel Edwards (D) recently met with leaders from the Louisiana Legislature to discuss his draft 2018 Tax & Budget Priorities, including recommendations for how the State should address the long-term issue of its current taxing and spending structure, as well as the short-term issue of the $1 billion “fiscal cliff” looming in the upcoming fiscal year.

The Governor has explained that his draft plan is “not calling for net new tax revenue,” but rather is meant to replace the temporary revenue measures enacted in 2015 and 2016.

Currently, it is anticipated that Governor Edwards will indeed call a special legislative session in February 2018 to solve the fiscal cliff and again discuss long-term tax reform.  The Governor cautioned, however, that he would not call a special session unless he felt that these issues could (and would) be resolved.

The 2018 regular session of the legislature is a non-fiscal session; thus, tax legislation is not germane.  As a result, the Governor would need to call a special session either before or after the regular session if any new tax bills are to be entertained by the legislature in 2018.  If no special session is called, then the legislature would be forced to address the upcoming fiscal cliff solely with budget cuts.

The fiscal cliff in next year’s budget results from the scheduled roll-off of incoming revenue from the additional 1% “clean penny” state-level sales tax, as well as the sunset of several temporary haircuts to various exemptions and credits.  These measures, which were put in place during the 2015 and 2016 legislative sessions, were considered “temporary” while the legislature worked toward longer-term taxing and spending reform.

The Governor has explained that he is not in favor of merely extending the “clean penny” sales tax increase past its current 2018 expiration date, unless it is a “bridge” to a more permanent solution.

This story may sound familiar, because it is.

Numerous long-term tax reform measures were proposed by the Governor’s administration during the legislature’s 2017 regular session.  Ultimately, however, much of that proposed legislation was largely rejected by the legislature, leaving questions unanswered as to how the state would address its short-term and long-term fiscal issues.

As was the case during the 2017 regular session, in his new draft 2018 Tax & Budget Priorities, the Governor has again proposed taxing measures consistent with those previously recommended by the legislative Task Force on Structural Changes in Budget and Tax Policy.

The Governor’s self-described “aggressive but balanced approach” to address the upcoming fiscal cliff and enact long-term tax reform includes:

  • Making permanent reductions to tax credits, deductions and rebates (Act 109, Act 123, and Act 126, of the 2015 regular session).
  • Compressing individual income tax brackets and reducing the excess itemized deduction to 50%.
  • Cleaning all four pennies of the state-level sales tax based on the currently available “clean penny” exemptions.
  • Taxing business utilities at 4% (full state-level permanent sales tax rate) and industrial utilities at 2% (50% state-level rate).
  • Expanding the sales tax to certain services.

The Governor has explained that his draft plan is “not calling for net new tax revenue,” but rather is meant to replace the temporary revenue measures enacted in 2015 and 2016.

Specifically, the Governor’s draft 2018 Tax & Budget Priorities propose the following:

Make Permanent Reductions to Tax Credits, Deductions, and Rebates

  • Act 109 of the 2015 regular session provided limitations on the credit for taxes paid to other states to those states that provide a similar tax credit for Louisiana income taxes paid on certain sources of income.  These limitations would be made permanent.
  • Act 123 of the 2015 regular session temporarily reduced the value of several corporate income tax exclusions and deductions, including depletion and dividend income.  These would be made permanent.
  • Act 126 of the 2015 regular session temporarily reduced the value of the following rebate programs:  Quality Jobs Program, Corporate Headquarters Relocation Program, and the Competitive Projects Payroll Incentive Program.  These reductions would be made permanent.

Compress Individual Income Tax Brackets and Reduce Excess Itemized Deductions to 50%

  • Current law allows and individual income tax deduction for 100% of excess federal itemized personal deductions.  Excess federal itemized personal deductions are defined as the amount by which the federal itemized personal deductions exceed the amount of the federal standard deduction.
  • The Governor’s proposal would reduce the amount of the deduction from 100% to 50%.  The proposal would also compress individual income tax brackets.

Clean All Four Pennies of State-Level Permanent Sales Tax Based on Currently Available “Clean Penny” Exemptions

  • The Governor’s proposal would expand the sales tax base on the permanent 4% state-level sales tax (the “permanent pennies”) by mirroring the current sales tax base of the temporary additional 1% “clean penny” state-level sales tax.

Tax Business Utilities at 4% and Industrial Utilities at 2%

  • Under Act 25 of the 2016 first special session, business utilities are currently subject to state-level sales tax at the rate of 3% through June 30, 2018 and 1% through March 31, 2019.
  • Business utilities are subject to the 1% “clean penny” state-level sales tax through June 30, 2018, pursuant to Act 26 of the 2016 first special session.  The total state-level sales tax rate for business utilities through June 30, 2018 is 4% and then 1% through March 31, 2019.
  • The proposal will tax business utilities at 4% and create a “special rate” for industrial users at 2%.

Expand Sales Tax to Services

  • The Governor’s plan would expand the sales tax base (likely the state and local sales tax base) to include services such as:
    • Debt collection services
    • Insurance services
    • Data processing services (similar to Texas)
    • Information services (similar to Texas)
    • Cable and satellite services
    • Repairs to real property (immovables)

As we move closer to a 2019 gubernatorial election year in Louisiana, budget issues, tax reform, and the raising of taxes will surely continue to be infused with a heavy dose of politics from all sides.

The Louisiana and multistate business community should continue to carefully follow the upcoming special session (if ultimately called) and be prepared to provide input or otherwise act with regard to any new legislation proposed this year by the legislature.

The Jones Walker SALT Team will continue to closely follow – and report on – these legislative developments as they occur.

House and Senate Release Final Tax Reform Bill

By Jones Walker LLP on Posted in Judicial Decisions, Legislation, Tax News

On December 15, the House and Senate conference committee released a conference report that reconciled the differences in each chamber’s tax reform bills. Both the House and Senate are expected to vote on the reconciled bill this week. Both have indicated that they have the necessary votes to pass the bill and the President has indicated that he will sign the bill into law.

Summaries of the key provisions are below:

Individuals: The top individual rate would be reduced from 39.6% to 37% for individuals earning at least $500,000 and joint filers earning at least $600,000. There would be 7 tax brackets in total (10%, 12%, 22%, 24%, 32%, 35%, and 37%). The standard deduction would nearly double to $12,000 for individuals and $24,000 for a couple filing jointly. The rates and standard deduction expansion expire in 2026.

Corporate Rate: The top corporate rate would be reduced to 21% starting January 1, 2018.

Pass-through Taxation: Pass-through entity owners that meet certain conditions would be eligible for a 20% deduction on their business income. Pass-through owners who file jointly with taxable income of at least $315,000 are subject to a phased-in limitation on the deduction. The restriction is based on how much the pass-through pays in wages or invests in equipment and machinery. Owners of pass-through service businesses, such as law, medical, and accounting firms, are eligible for the deduction if the owners are under the taxable income threshold, and the deduction is phased out completely if the taxable income of an owner who filed jointly is at least $415,000. The deduction would expire in 2026.

Estate, Gift, and Generation-Skipping Transfer Tax: The lifetime estate, gift, and generation-skipping transfer tax exemptions would be doubled to $11 million for individuals and $22 million for married couples, indexed annually for inflation. The exemption amounts would revert to current levels after 2025.

State and Local Tax Deduction: Individual taxpayers could deduct up to an aggregate of $10,000 of state and local property, income, and sales taxes.

Interest Deductibility: Interest deductions would be limited to 30% of a company’s earnings before interest, tax, depreciation, and amortization (EBITDA) for 4 years. After that, the bill would limit the deduction to 30% of earnings before interest and taxes (EBIT). However, this limitation does not apply to businesses with average annual gross receipts not exceeding $25 million.

Business Expensing: Full expensing of new and used capital investments would be permitted for 5 years. Section 179 expensing will also be made permanent.

Tax Credits: The bill does not materially modify the Low Income Housing or New Markets Tax Credit programs. For buildings owned or leased after January 1, 2018, Historic Tax Credits must be claimed over a 5 year period (currently, the full amount of the credit may be claimed in the year the credit is earned). The 5-year modification will generally not apply to buildings that were owned or leased prior to January 1, 2018.

Private Activity Bonds: Interest on private activity bonds remains tax-exempt.

International Tax: The international taxation regime would move toward a territorial system, and would include a base erosion and anti-abuse tax, which requires U.S. multinationals that make excessive deductible payments to their foreign affiliates to pay a 10% tax on their income without such deductions, after a one-year 5% transition rate. A new tax on global intangible low-taxed income would be imposed. Overseas profits would be taxed automatically at a 15.5% rate for cash assets and 8% rate for illiquid assets.

Alternative Minimum Tax: The individual AMT would be increased to apply to individuals earning more than $500,000 or joint filers earning $1 million. The corporate AMT would be repealed.

Mortgage Interest Deduction: The bill would preserve the deduction for existing mortgages and add a cap of $750,000 for newly purchased homes starting January 1, 2018. However, the deduction for interest on home equity loans would be suspended.

Child Tax Credit: The child tax credit would be increased to $2,000 per child with up to $1,400 of it being refundable and a higher income phased out would apply.

College Endowments: A 1.4% excise tax is imposed on the net investment income of private university and college endowments. The tax applies to schools with assets of more than $500,000 per student.

We will provide a more detailed analysis of the key provisions after (and if) the bill is signed into law.

Mississippi Files Final Remote Seller Use Tax Regulation

By John Fletcher on Posted in Tax News

“Substantial economic presence” nexus standard formally embodied in regulation.

As expected after recently having filed an economic impact statement, the Mississippi Department of Revenue on November 1 filed its final remote seller use tax regulation with the Secretary of State. The new regulation will be effective December 1, 2017, and contains numerous changes from the original proposal issued in January (see prior Jones Walker coverage here, here, here, and here). The notice contains no public hearing or comment period, so it is unlikely there will be any further revisions prior to the effective date.

“Substantial economic presence” standard finalized.

The final regulation retains the original $250,000 annual sales standard, providing that anyone having that level of sales into the state over the prior twelve months has “substantial economic presence” and has use tax nexus if those sales are coupled with purposeful and systematic exploitation of the market.

The original proposal based the testing period on the previous calendar year’s sales, whereas the final version applies it on a rolling twelve-month basis. Under both versions, the collection requirement is triggered prospectively once that threshold is met, and does not apply retroactively to the sales occurring during that test period.

As written, however, the new rolling standard could result in a seller temporarily having substantial economic presence based on a brief spike in sales, only to have them fall below that standard a few months later. It is unclear whether the Department will allow a seller in that circumstance to cancel its use tax registration until it again had a sales spike and exceeded the threshold over that rolling test period.

What constitutes “purposefully or systematically” exploiting the market?

The Mississippi use tax statutes do not make any reference to “substantial economic presence” or contain the $250,000 standard, but they do purport to require a foreign seller to collect and remit use tax if that seller “purposefully or systematically” exploits the consumer market. The final regulation provides the following examples the Department considers to meet this standard:

  1. Television or Radio advertising on a Mississippi station;
  2. Telemarketing to Mississippi customers;
  3. Advertising on any type of billboard, wallscape, bus bench, interiors and exteriors of buses or other signage located in Mississippi;
  4. Advertising in Mississippi newspapers, magazines or other print media;
  5. Emails, texts, tweets and any form of messaging directed to a Mississippi customer;
  6. Online banner, text or pop up advertising directed toward Mississippi customers;
  7. Advertising to Mississippi customers through applications “apps” or other electronic means on customer’s phones or other devices; or
  8. Direct mail marketing to Mississippi customers.

In the context of electronic commerce, the final regulation does not disclose any specific criteria the Department will use to determine whether any of these enumerated activities are “directed toward a Mississippi customer” as opposed to the online market generally. For example, a seller could sponsor an online banner or pop-up advertisement on a national news website or social media site targeted to the public generally, but not specifically to Mississippi. If a Mississippi resident stumbles upon that website, can the seller be deemed to have specifically targeted that customer or the Mississippi consumer market in particular? Likewise, will the Department rely on cookies, phone or credit card billing addresses, actual internet access points (i.e., tower locations, wifi hotspots, etc.), or some other criteria to determine whether Mississippi was the targeted market for a seller’s texts, emails, tweets, and “any form or messaging”?

These distinctions could be very important not only in determining if the seller meets the regulation’s criteria, but also from a constitutional perspective. The lack of clarity on these points raises substantial vagueness questions and may render the regulation constitutionally suspect on due process grounds even if Quill’s physical presence standard is eventually overturned.

Is $250,000 nexus threshold limited solely to tangible personal property sales?

In what may be a critical nuance, the final regulation removed the reference to “retail sales of tangible personal property” when enacting the $250,000 sales threshold. Under the original proposal, it appeared clear that only tangible personal property sales would be considering when applying that standard.

By removing that reference in these final provisions, however, the Department may be signaling that it intends to make the initial nexus determination based on all sales activities, potentially including wholesale transactions, services and sales of intangible property. Although the regulation only requires the addition of the use tax to sales of tangible personal property, this new distinction could be a trap for the unwary and may require sellers to modify their data collection processes to encompass a broader range of activities when calculating that $250,000 trigger.

No voluntary compliance safe harbor in final regulation.

The original proposal provided that sellers who voluntarily registered by July 1, 2017, would be subject to the regulation strictly on a prospective basis, but that the Department would apply the regulation retroactively and without any statute of limitations to those who did not. That language was removed from the final version.

Uncertainty regarding effective date.

The final regulation states that the regulation applies to all transactions on or after December 1, 2017. It does not specify, however, whether that means the rolling twelve-month test period will be measured by transactions beginning on that date or if the collection requirement begins on that date based on the preceding twelve months’ sales.

Jones Walker will continue to monitor these developments and provide updates as these issues arise and are clarified.

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