• Mississippi Moves Toward Factor Presence Nexus for Use Tax
  • February 21, 2017 | Author: John F. Fletcher
  • Law Firm: Jones Walker LLP - Jackson Office
  • Companion House and Senate bills and proposed new regulation would implement $250,000 "substantial economic presence" standard

    Two bills have been introduced in the Mississippi Legislature to enact factor presence nexus standards to require certain foreign sellers to collect and remit Mississippi use tax. House Bill 480 and Senate Bill 2456, clearly aimed at internet sellers, would expand the current definition of "doing business" under Section 27-67-3(j) to encompass out-of-state sellers meeting the following $250,000 annual sales threshold:

    "any out-of-state seller who lacks a physical presence in this state but who is making retail sales of tangible personal property into this state and has a substantial economic presence in this state by such seller's retail sales of tangible personal property sold into this state exceeding Two Hundred Fifty Thousand Dollars ($250,000.00) based on the immediately preceding calendar year sales."

    An interesting aspect of the new law would be that it would impose the collection responsibility in the year following the year a seller exceeded the sales threshold, even if that second year's sales fell below that amount. As written, a particular seller's collection responsibility could be an on-again-off-again affair as the bill is presently written.

    Simultaneously with the filing of these bills, the Department of Revenue filed a notice to adopt a new regulation, Miss. Admin. Code 35.IV.3.09, that would adopt the same standard in defining whether a foreign seller has a substantial economic presence. While nexus is not defined in the proposed legislation, the proposed regulation states that nexus is created "when the consumer market is purposefully and systematically exploited" via the internet or other media. Thus, the bills and one section of the regulation appear to impose the collection requirement even if there is only a single transaction exceeding $250,000, while another section of the regulation states that nexus exists only if there is purposeful and systematic activity directed at the state. It is unclear at this point how the Department plans to administer or resolve this apparent conflict.

    Additionally, the regulation would also provide that those who voluntarily register to collect taxes before July 1, 2017, will not be assessed retroactively and will only be responsible for collecting the use tax prospectively. Those who do not register by that deadline will face unlimited prior period exposure and the Department would not apply any statute of limitations to limit their lookback period, apparently without regard to the fact that this new standard represents a clear change in Mississippi law.

    No action has been taken on the bills at the Legislature as of this date, but the Department has scheduled a public hearing on the proposed regulation for February 15 at 3:30 p.m. at the Department's headquarters. Jones Walker will closely monitor the progress of these bills and the proposed regulation.