KRS 139.795 — Certified service provider is agent of seller -- Liability -- Exemption for purchaser, seller, and certified service provider

(1) (a) A certified service provider is the agent of a seller, with whom the certified
service provider has contracted, for the collection and remittance of sales and
use taxes.
(b) The certified service provider is liable for sales and use tax due each member
state on all sales transactions it processes for the seller, except when the
liability for not collecting the sales or use taxes results from the certified
service provider's reliance on software certified by the state. Relief from
liability shall not be granted if the certified service provider has incorrectly
classified an item or transaction into a product -based exemption certified by
the state, except when the item or transaction is classified based upon the
individual listing of items or transactions within a product definition approved
by the governing board or the member state.
(c) A person that is responsible for th e certified automated system is responsible
for the functioning of the system and is liable to the state for underpayments
of tax attributable to errors in the functioning of the certified automated
system.
(2) (a) A seller that contracts with a certified service provider is not liable to the state
for sales or use tax due on transactions processed by the certified service
provider unless the seller misrepresented the type of items it sells or
committed fraud;
(b) In the absence of probable cause to believe that the seller has committed fraud
or made a material misrepresentation, the seller is not subject to audit on the
transactions processed by the certified service provider; and
(c) A seller is subject to audit for transactions not processed by the certif ied
service provider.
(3) The member states acting jointly may perform a system check of the seller and
review the seller's procedures to determine if the certified service provider's system
is functioning properly and the extent to which the seller's tran sactions are being
processed by the certified service provider.
(4) (a) A model 2 seller shall be relieved of liability for not collecting sales and use
taxes if the liability resulted from the model 2 seller's reliance on software
previously certified by the state. Relief from liability shall not be granted if the
certified service provider has incorrectly classified an item or transaction into
a product -based exemption certified by the state, except when the item or
transaction is classified based upon th e individual listing of items or
transactions with a product definition approved by the governing board or the
member state.
(b) The department shall notify the certified service provider or model 2 seller if
an item or transaction has been incorrectly classified as to its taxability.
(c) The certified service provider or a model 2 seller shall have ten (10) days to
revise the classification after the receipt of notice.
(d) Upon expiration of the ten (10) days, the certified service provider or the
model 2 seller shall be liable for the failure to collect the amount of sales or
use taxes due and owing.
(5) A model 3 seller that has signed a performance agreement establishing a
performance standard for that system is liable for the failure of the system to me et
the performance standard.
(6) A purchaser, purchaser's seller, or certified service provider shall not be subject to
the additional tax, related penalties imposed under KRS 131.180, or related interest
provided under KRS 131.183 for having failed to pay the correct amount of sales or
use tax on specific transactions if:
(a) The purchaser's seller or certified service provider relied on erroneous data
provided by the department on tax rates, boundaries, or taxing jurisdiction
assignments; or
(b) The purchaser, purchaser's seller, or purc haser's certified service provider
relied on erroneous data in the taxability matrix completed and made available
to the public by the department. The relief prescribed in this paragraph for
additional tax and related interest provided under KRS 131.183 sh all be
limited to the department's erroneous classification in the taxability matrix as
"taxable" or "exempt," "included in sales price" or "excluded from sales
price," or "included in the definition" or "excluded in the definition."
(7) (a) If the departm ent does not provide the seller with at least thirty (30) days'
notice from the enactment of a sales and use tax rate change to the effective
date of the rate change, the seller shall be relieved of liability for failing to
collect tax at the new rate if:
1. The seller collected tax at the immediately preceding effective rate; and
2. The seller's failure to collect tax at the new rate does not extend beyond
thirty (30) days after the date of enactment of the new rate.
(b) Notwithstanding paragraph (a) of this subsection, if the department establishes
that the seller fraudulently failed to collect tax at the new rate or solicits
purchasers based on the immediately preceding effective rate, the relief
provided to the seller in paragraph (a) of this subsection shall not apply.
(8) A purchaser shall not be subject to the additional tax, related penalties imposed
under KRS 131.180, or related interest provided under KRS 131.183 for failing to
pay the correct amount of sales or use tax on specific transactions if t he purchaser
holds a direct pay authorization and relied on erroneous data provided by the
department on the tax rates, boundaries, or taxing jurisdiction assignments.