TWIST - This Week in State Tax

Minnesota: Additional Marketplace Provider Information Posted

The Minnesota Department of Revenue recently updated its website to post additional information on marketplace providers. As a reminder, since October 1, 2019, an out-of-state marketplace provider has been required to collect and remit Minnesota state and local sales tax if its total sales (including facilitated sales) over the prior 12-month period totaled either 200 or more retail sales shipped to Minnesota, or more than $100,000 in retail sales shipped to Minnesota. The threshold includes all of a marketplace provider’s direct sales and facilitated sales, but excludes sales for resale.  Some of the guidance reiterates the statute, such as noting that a marketplace provider is not required to collect sales tax when the seller has provided the marketplace a copy of the seller’s Minnesota sales tax registration and there is an agreement between the seller and the marketplace that the seller will collect tax.  The Department confirms that foreign marketplaces are subject to the marketplace provider collection requirements and that marketplace providers that facilitate sales for foreign sellers are required to collect on the foreign seller’s behalf. The guidance also addresses marketplace provider return filing requirements as well as recordkeeping requirements and confirms that marketplace providers are retailers subject to sales tax audits as with any other businesses. In addition to general and local sales taxes, the guidance notes a marketplace provider may be required to collect additional taxes and fees including, but not limited to, the Liquor Gross Receipts Tax and Prepaid Wireless E911 and Telecommunications Access Minnesota (TAM) Fees.  Please stay tuned to TWIST for additional marketplace updates. 

Texas: Comptroller Adopts Post-Sirius Updates to Apportionment Rule

The Texas Comptroller has officially adopted amendments to 34 TAC §3.591 effective March 14, 2023. Recall, 34 TAC §3.591 is the rule addressing apportionment for purposes of the Margin (Franchise) Tax. Importantly, as amended, the rule removes the “receipts-producing, end-product act” test that was invalidated by the Texas Supreme Court in the Sirius XM decision. In its place, language is added providing that a service is performed at the location or locations where the taxable entity's personnel or property are doing the work that the customer hired the taxable entity to perform. This language was added to incorporate the court’s determination that the most natural reading of “service performed in this state” supports locating the performance of the service at the place where the taxpayer's personnel or equipment is physically doing useful work for the customer.

The rule then provides that “activities that are not directly used to provide a service are not relevant when determining the location where a taxable entity performs a service.” Scant guidance is offered on how taxpayers should determine the fair value of services performed in Texas if services are performed both within and without Texas.  However, the amended regulation notes that if costs are considered, costs should be limited to the direct costs of doing the work that the customer hired the taxable entity to perform and should not include costs that are not directly used to provide a service to the customer.  There are no changes to other parts of 34 TAC §3.591, including the section adopting customer-based sourcing provisions for Internet hosting services. Internet hosting services are broadly defined to include video gaming, data processing, streaming, and marketplace provider services. The rule also retains the audience-based rules for advertising services. The changes to the rule are effective March 14, 2023, but will be applied retroactively.  Please contact Jeff Benson or Karey Barton with questions.

Wisconsin: Ticket Reseller Liable for Sales Tax on Secondary Ticket Sales

The Wisconsin Tax Appeals Commission recently addressed whether an operator of an online ticket marketplace was liable for approximately $8.5 million in Wisconsin sales and use tax (as well as additional penalties and interest over $8.5 million) for the 2008-2013 tax years.  These tax years were prior to the adoption of a Wisconsin law requiring marketplace providers to collect and remit sales tax. The taxpayer operated an online marketplace on which tickets to sporting events, concerts, theater and other live entertainment services were bought and sold on the secondary market.  It was not known whether any original ticket purchaser had paid sales taxes on their purchases. Following an audit, the Department assessed the taxpayer for sales taxes on the full purchase price of tickets sold to events occurring in Wisconsin. It was not disputed that the taxpayer likely had Wisconsin nexus based on its contacts with the state. Instead, the dispute centered on whether the taxpayer was a “retailer” that was “selling” taxable admissions at retail in Wisconsin. In a lengthy decision, the Commission rejected the taxpayer’s arguments and concluded it was making sales at retail under Wisconsin law. Although the taxpayer argued that it had to meet the definition of a “retailer” to be required to pay sales tax, the Commission determined that it was not necessary for a person to be considered a retailer or deemed to be a retailer for its sales to be subject to tax. Although the Commission concluded that the taxpayer had not proven that the Department’s sales tax assessment was incorrect, it declined to impose the 25 percent negligence penalty, as it was not supported by the authorities in existence during the audit period according to the Commission. For more information on Stubhub, Inc v. Wisconsin Department of Revenue, please contact Jill Nielsen.