On June 12, 2017, Congressman Jim Sensenbrenner (R-WI) reintroduced into Congress H.R. 2887, also known as the “No Regulation Without Representation Act of 2017” (the “Legislation”), which codifies the physical presence nexus requirement established by the U.S. Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992) (“Quill”). The Legislation is interesting for several reasons: (1) it proposes to employ a result that is the exact opposite of the recent trend to overturn Quill; (2) it defines “tax” broadly to include net income and business activity taxes; and (3) it expands the law to require a physical presence for states to regulate a person’s activity in interstate commerce outside of the tax context.
The Arizona Department of Revenue (“Department”) recently made public Letter Ruling 16-011 (“Ruling”), which concluded that a taxpayer’s gross income from electronic transaction processing services that involved the use of software was not taxable for Arizona transaction privilege tax (“TPT”) purposes. The Department opined that the electronic transaction processing services were not taxable as a rental of tangible personal property because the taxpayer’s customers did not have the “exclusive control” over the software required for a taxable rental. This Ruling is significant because the Department, like revenue departments in several other states (including New York), has historically concluded that online services involving the remote access or use of software were subject to the TPT as a rental of tangible personal property, without analyzing the degree of control the customer had over the software.
The U.S. House of Representatives passed H.R. 2315, the Mobile Workforce State Income Tax Simplification Act of 2015 (“Mobile Workforce Act” or “Act”), on September 21, 2016. The Senate received the House-approved bill on September 22, 2016, and its ultimate fate remains unclear.