House Study Bill 226 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS) A BILL FOR An Act relating to the collection of sales and use tax in this 1 state, including retailers maintaining a place of business 2 in this state, agreements relating to the collection of 3 sales and use taxes, sales of tangible personal property and 4 services to the state, related reporting requirements, and 5 the transfer of certain sales and use tax revenues to the 6 taxpayers trust fund. 7 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 8 TLSB 1498YC (4) 85 mm/sc

H.F. _____ Section 1. Section 423.1, subsection 48, Code 2013, is 1 amended to read as follows: 2 48. a. “Retailer maintaining a place of business in this 3 state” or any like term includes any retailer having or 4 maintaining within this state, directly or by a subsidiary, 5 an office, distribution house, sales house, warehouse, or 6 other place of business, or any representative operating 7 within this state under the authority of the retailer or its 8 subsidiary, irrespective of whether that place of business or 9 representative is located here permanently or temporarily, or 10 whether the retailer or subsidiary is admitted to do business 11 within this state pursuant to chapter 490 . 12 b. (1) A retailer shall be presumed to be maintaining a 13 place of business in this state, as defined in paragraph “a” , if 14 any person that has substantial nexus in this state, other than 15 a person acting in its capacity as a common carrier, does any 16 of the following: 17 (a) Sells a similar line of products as the retailer and 18 does so under the same or similar business name. 19 (b) Maintains an office, distribution facility, warehouse, 20 storage place, or similar place of business in this state to 21 facilitate the delivery of property or services sold by the 22 retailer to the retailer’s customers. 23 (c) Uses trademarks, service marks, or trade names in this 24 state that are the same or substantially similar to those used 25 by the retailer. 26 (d) Delivers, installs, assembles, or performs maintenance 27 services for the retailer’s customers. 28 (e) Facilitates the retailer’s delivery of property to 29 customers in this state by allowing the retailer’s customers to 30 take delivery of property sold by the retailer at an office, 31 distribution facility, warehouse, storage place, or similar 32 place of business maintained by the person in this state. 33 (f) Conducts any other activities in this state that 34 are significantly associated with the retailer’s ability 35 -1- LSB 1498YC (4) 85 mm/sc 1/ 7

H.F. _____ to establish and maintain a market in this state for the 1 retailer’s sales. 2 (2) The presumption established in this paragraph may be 3 rebutted by a showing of proof that the person’s activities in 4 this state are not significantly associated with the retailer’s 5 ability to establish or maintain a market in this state for the 6 retailer’s sales. 7 Sec. 2. Section 423.2, subsection 11, paragraph b, Code 8 2013, is amended by adding the following new subparagraph: 9 NEW SUBPARAGRAPH . (6) Transfer to the taxpayers trust fund 10 created in section 8.57E that portion of the sales tax revenue 11 specified in section 423.36, subsection 9, that remains after 12 the other transfers required under this paragraph “b” . 13 Sec. 3. NEW SECTION . 423.13A Administration —— 14 effectiveness of agreements with retailers. 15 1. Notwithstanding any provision of this chapter to the 16 contrary, any ruling, agreement, or contract, whether written 17 or oral, express or implied, entered into after the effective 18 date of this Act between a retailer and a state agency that 19 provides that a retailer is not required to collect sales and 20 use tax in this state despite the presence in this state of 21 a warehouse, distribution center, or fulfillment center that 22 is owned and operated by the retailer or an affiliate of the 23 retailer shall be null and void unless such ruling, agreement, 24 or contract is approved, by resolution, by a majority vote of 25 each house of the general assembly. 26 2. For purposes of this section, “state agency” means 27 the executive branch, including any executive department, 28 commission, board, institution, division, bureau, office, 29 agency, or other entity of state government. “State agency” 30 does not mean the general assembly, or the judicial branch as 31 provided in section 602.1102. 32 Sec. 4. Section 423.36, Code 2013, is amended by adding the 33 following new subsections: 34 NEW SUBSECTION . 1A. a. Notwithstanding subsection 1, 35 -2- LSB 1498YC (4) 85 mm/sc 2/ 7

H.F. _____ if any person will make taxable sales of tangible personal 1 property or furnish services to any state agency, that person 2 shall, prior to the sale, apply for and receive a permit 3 to collect sales or use tax pursuant to this section. A 4 state agency shall not purchase tangible personal property 5 or services from any person unless that person has a valid, 6 unexpired permit issued pursuant to this section and is in 7 compliance with all other requirements in this chapter imposed 8 upon retailers, including but not limited to the requirement to 9 collect and remit sales and use tax and file sales and use tax 10 returns. 11 b. For purposes of this subsection, “state agency” means 12 any executive, judicial, or legislative department, commission, 13 board, institution, division, bureau, office, agency, or other 14 entity of state government. 15 NEW SUBSECTION . 9. For all permits issued on or after the 16 effective date of this Act except permits issued pursuant to 17 subsection 8, the department shall determine whether or not the 18 applicant’s requirement to obtain the permit arose exclusively 19 from an activity described in section 423.1, subsection 48, 20 paragraph “b” . In those cases where the permit requirement 21 did arise exclusively from such activity, the department shall 22 transfer all sales or use tax revenues collected and remitted 23 by the permit holder that relate to the permit to the taxpayers 24 trust fund created in section 8.57E, as provided in section 25 423.2, subsection 11, paragraph “b” , and section 423.43, 26 subsection 1, paragraph “b” . 27 Sec. 5. Section 423.43, subsection 1, paragraph b, Code 28 2013, is amended to read as follows: 29 b. Subsequent to the deposit into the general fund of the 30 state and after the transfer of such department shall do the 31 following in the order prescribed: 32 (1) Transfer the revenues collected under chapter 423B , the 33 department shall transfer . 34 (2) Transfer one-sixth of such remaining revenues to the 35 -3- LSB 1498YC (4) 85 mm/sc 3/ 7

H.F. _____ secure an advanced vision for education fund created in section 1 423F.2 . This paragraph subparagraph is repealed December 31, 2 2029. 3 (3) Transfer to the taxpayers trust fund created in section 4 8.57E that portion of the use tax revenue specified in section 5 423.36, subsection 9, that remains after the other transfers 6 required under this paragraph “b” . 7 Sec. 6. SALES AND USE TAX REPORT. 8 1. Not later than sixteen months after the occurrence 9 of both the enactment of a federal law authorizing states to 10 impose a sales and use tax collection requirement on remote 11 sellers and the exercise of that authority by this state, the 12 department of revenue shall issue a report to the general 13 assembly containing data and information on the following: 14 a. The amount of sales and use tax collected in this state 15 from remote sellers for the twelve-month period beginning on 16 the date such collection requirement was first imposed in this 17 state. 18 b. An estimate of the projected sales and use tax revenue 19 that will be collected from remote sellers for the fiscal year 20 beginning July 1 following the date such collection requirement 21 was first imposed in this state, and for four fiscal years 22 thereafter. 23 c. An estimate of the sales and use tax rate that will be 24 necessary for this state to maintain for future fiscal years an 25 amount of sales and use tax revenue equal to the average sales 26 and use tax revenue of this state for the five fiscal years 27 prior to the fiscal year in which this state first imposed a 28 collection requirement on remote sellers. 29 d. Any other information deemed necessary by the department 30 of revenue. 31 2. For purposes of this section, “remote seller” means 32 a seller who would not have a sales or use tax collection 33 obligation in this state but for the authorization under 34 federal law for this state to require such seller to collect 35 -4- LSB 1498YC (4) 85 mm/sc 4/ 7

H.F. _____ sales or use tax. “Remote seller” does not include a seller 1 who voluntarily registered under the streamlined sales and use 2 tax agreement before the date of enactment of a federal law 3 authorizing states to impose a sales and use tax collection 4 obligation on remote sellers. 5 EXPLANATION 6 This bill relates to the collection of sales and use taxes in 7 this state, including retailers maintaining a place of business 8 in this state, agreements relating to the collection of sales 9 and use taxes, sales of tangible personal property and services 10 to state agencies, related reporting requirements, and the 11 transfer of certain sales and use tax revenues to the taxpayers 12 trust fund. 13 A retailer located in this state, or maintaining a place of 14 business in this state, must collect and remit sales and use 15 taxes to the department of revenue. Currently, as defined in 16 Code section 423.1, the term “retailer maintaining a place of 17 business in this state” includes certain places of business, 18 and representatives operating under the authority of the 19 retailer. 20 The bill provides that a retailer will be presumed to be 21 maintaining a place of business in this state if any person 22 that has substantial nexus in this state, other than a common 23 carrier, engages in any of six activities specified in the 24 bill. The presumption may be rebutted by a showing of proof 25 that the person’s activities are not significantly associated 26 with the retailer’s ability to establish or maintain a market 27 in this state for the retailer’s sales. 28 The bill provides that for all sales and use tax permits 29 issued on or after the effective date of the bill, the 30 department of revenue shall determine whether or not the permit 31 requirement arose exclusively from one of the six activities 32 specified in the bill. If such permit requirement did arise 33 exclusively from one of the activities, the department of 34 revenue shall transfer all sales or use tax revenues collected 35 -5- LSB 1498YC (4) 85 mm/sc 5/ 7

H.F. _____ and remitted by the permit holder and that relate to the permit 1 to the taxpayers trust fund created in Code section 8.57E, 2 after various other transfers already required in the Code. 3 The bill provides that any ruling, agreement, or contract 4 entered into after the effective date of the bill between a 5 retailer and a state agency that provides that a retailer is 6 not required to collect sales and use tax in this state despite 7 the presence in this state of a warehouse, distribution center, 8 or fulfillment center owned and operated by the retailer or 9 an affiliate shall be null and void unless it is specifically 10 approved, by resolution, by a majority vote of each house of 11 the general assembly. For purposes of this provision of the 12 bill, “state agency” does not include the general assembly or 13 the judicial branch. 14 The bill provides that a person shall not make taxable sales 15 or furnish taxable services to a state agency unless that 16 person obtains a sales or use tax permit. Also, the state is 17 prohibited from purchasing taxable property or services from 18 any person unless that person has a valid, unexpired sales or 19 use tax permit and is in compliance with all other sales and 20 use tax laws imposed upon retailers. For purposes of this 21 provision of the bill, “state agency” includes the executive 22 branch, the general assembly, and the judicial branch. 23 The bill requires the department of revenue to file a report 24 with the general assembly not later than 16 months after the 25 occurrence of both the enactment of a federal law authorizing 26 the state to require remote sellers to collect sales and use 27 tax and the exercise of that authority by the state. The 28 report shall contain various data and information as specified 29 in the bill relating to the amount of sales and use tax 30 collected from remote sellers, estimates of future sales and 31 use tax collections from remote sellers, and an estimate of 32 the sales and use tax rate necessary to maintain for future 33 fiscal years the average amount of sales and use tax collected 34 before the state first imposed a collection requirement on 35 -6- LSB 1498YC (4) 85 mm/sc 6/ 7

H.F. _____ remote sellers. “Remote seller” is defined as a seller that 1 would not have a sales or use tax collection requirement in 2 this state but for the ability of this state to require the 3 seller to collect sales or use tax under federal law, but does 4 not include any seller that voluntarily registered under the 5 streamlined sales and use tax agreement prior to the enactment 6 of such federal law. 7 -7- LSB 1498YC (4) 85 mm/sc 7/ 7