Legislation has been proposed in a number of states that would either adopt economic nexus for retailers and marketplace facilitators or expand the state’s current economic nexus provisions.
The Virginia General Assembly has passed two bills (House Bill 1722 and Senate Bill 1083) that, if signed, would require certain remote sellers and marketplace facilitators to collect state and local sales taxes on sales into the state. Under the bills, a remote seller would be required to collect tax if the seller receives $100,000 or more in gross revenue or engages in 200 or more separate transactions in the Commonwealth in the previous or current calendar year. The bills define a marketplace facilitator as a person that, either directly or indirectly, (a) engages in transmitting or communicating an offer or acceptance between a marketplace seller and a purchaser, (b) owns or operates the infrastructure for bringing sellers and purchasers together, or (c) provides a virtual currency for making marketplace purchases and engages in one or more of several specified facilitation activities such as processing payments, listing products, and fulfillment and storage. A marketplace does not include an entity whose only activity is processing payments between two parties. A marketplace facilitator meeting the economic nexus threshold of $100,000 in gross revenue or 200 retail sale transactions will be treated as a dealer for tax collection purposes and will be required to collect tax on all sales made directly or facilitated by the marketplace. Conversely, no marketplace seller shall collect sales and use tax on a transaction made through a marketplace facilitator's marketplace. The collection requirement for a marketplace facilitator may be waived by the Department of Taxation if the marketplace can demonstrate that all sellers for which it facilitates sales are registered with the Department or the seller meets the requirements to be registered for tax collection and having the tax collected by the marketplace would impose an undue burden or hardship on the seller or the marketplace. The bills also provide that remote sellers and marketplaces must receive at least 30 days advance notice of any local tax rate changes. If signed, the bills would be applicable to sales made after July 1, 2019, but sales made prior to July 1, 2019 could be considered in determining if a seller meets the economic nexus threshold. In addition, upon an application showing good cause, the Department may waive or suspend the collection or reporting requirements as applied to a marketplace facilitator for a period of not more than 90 days past July 1, 2019.
Arkansas (H.B. 1002), Arizona (H.B. 2702) Missouri (H.B. 41, H.B. 548, H.B. 593, H.B. 701, S.B. 46, S.B. 50), and New Mexico (S.B. 358, S.B. 421, H.B. 6) have proposed legislation which, among other things, would establish a sales tax collection and remittance obligation on remote sellers and/or marketplace facilitators. The Arizona legislation would obligate remote sellers and marketplace facilitators meeting certain sales thresholds to collect Transaction Privilege Tax on sales into the state. The bill would also authorize municipalities to impose a collection obligation on remote sellers (other than those selling through a marketplace) only if the municipality conformed its local privilege tax to certain aspects of the state tax, including retail classifications, the taxation of food for home consumption, and certain definitions.
Oklahoma, which last year enacted a “collect or report” requirement for remote sellers and marketplaces, is considering three pieces of Wayfair-related legislation (H.B. 2352, H.B. 2033, S.B. 513), Each bill would eliminate the current “collect or report” option for remote sellers, but not for marketplace facilitators or referrers. Similarly, the Georgia legislature is considering H.B. 182 which, effective January 1, 2020, would amend legislation adopted last year by lowering the economic nexus threshold from $250,000 in receipts to $100,000 and convert the “collect or report” option to a collection only requirement for affected sellers.
Lawmakers in Indiana (H.B. 1352), Nebraska (L.B. 284, L.B. 314), Vermont (H.117), and West Virginia (S.B. 477, H.B. 2813) have proposed legislation that would expand the state’s existing economic nexus thresholds and sales tax collection and remittance obligations to marketplace facilitators.
In Tennessee (S.B. 82) and Maryland (H.B. 811), the proposed legislation would, among other things, codify existing regulations imposing collection obligations on remote sellers. In Colorado, S.B. 130 would modify existing provisions affecting remote sellers, and S.B. 131 would codify destination sourcing rules adopted by the Department of Revenue sales into Colorado. In addition, Missouri (H.B. 724) and Connecticut (H.B. 6270) have introduced legislation that would bring the state into compliance with the Streamlined Sales and Use Tax Agreement (SSUTA).
In Washington, two bills (H.B. 1890 and S.B. 5581) are intended to clarify and simplify the state’s current sales and use tax and Business and Occupation (B&O) tax nexus provisions. These bills, if enacted, would adopt a single economic nexus threshold of $100,000 for sales and use tax and B&O tax. They also eliminate a “collect or report” obligation imposed on certain sellers and marketplaces that are below the $100,000 threshold. Effective January 1, 2020, the transactions threshold would be eliminated. The bills would also clarify that any person or business entity establishing nexus for B&O and retail sales tax purposes would be required to pay all other applicable taxes and fees administered by the Washington Department of Revenue, beginning on January 1, 2020. Note that Substitute Senate Bill 5581 was approved by the Senate on February 15, 2019.
States have also continued to issue/revise guidance on existing sales and use tax collection obligations. The Illinois Department of Revenue has issued draft regulations that would provide regulatory guidance for remote sellers and/or marketplace facilitators. The Iowa Department of Revenue has issued proposed regulations that address some of the complexities that arise in the context of marketplace sales.
The Wisconsin Department of Revenue has recently revised a Sales and Use Tax Publication to provide additional information on the sales tax collection obligation of remote sellers. The guidance clarifies that a “year” is the retailer’s taxable year for federal income tax purposes. In determining whether the retailer has exceeded the threshold, retailers should account for both taxable and nontaxable sales and consider each periodic payment of a lease or license as a separate transaction. Further, advance deposits are not considered sales transactions.
The Michigan Department of Revenue recently published FAQs for Remote Sellers to address the sales tax obligations of a remote seller. The FAQs clarify that wholesalers with no retail sales are not required to register with Michigan because wholesale sales are not subject to tax, even if the wholesaler exceeds the economic nexus thresholds of $100,000 in receipts or 200 transaction that went into effect on October 1, 2018. The FAQs also provide that remote sellers exceeding the threshold in 2018, but before October 1, 2018, should begin collecting and remitting sales tax on sales beginning January 1, 2019.
In Alaska, there is no statewide sales tax. However, many municipalities impose local sales and use taxes and have started looking at what would be needed to require remote sellers to collect the local sales taxes. The Alaska Municipal League, has commenced working with localities to develop a uniform local sales tax ordinance, and create a centralized system for collecting and distributing revenue generated from remote sales. This project is in the early stages. Please stay tuned to TWIST for future updates.