On November 25, 2017 Colorado published a permanent rule in regard to its Notice and Reporting requirement for out-of-state retailers. The permanent rule includes a few minor changes and clarifications from the previously announced requirements.
Summary of Rule
Effective July 1, 2017, Colorado required an out-of-state retailer whose total gross sales into Colorado are $100,000 or more, and who does not collect Colorado sales tax, to give a transactional notice to their Colorado purchasers that sales tax has not been collected and that use tax may be owed. Additionally, if any of their Colorado purchasers purchased more than $500 worth of products in a calendar year, then a Purchase Summary must be mailed to that purchaser and a corresponding Informational Report given to the Colorado Department of Revenue.
Noteworthy Changes with Permanent Rule
- Colorado has recognized that some out-of-state retailers making online sales utilize third party payment processing vendors. Previously, to give a transactional notice, an online retailer would be required to display a transactional notice on the “check out” page. However, for retailers that use a third party payment processor, they may not have control of the content that is on the “check out” page. Therefore, those retailers can now give the transactional notice on the “product page” of their website.
- For retailers that utilize subscription type sales such as a “Jelly of the Month Club,” Colorado has clarified the notice requirements. For subscription type sales, a transactional notice is only required when the purchaser enrolls in the subscription or renews it.
- The maximum penalty limitation given to out-of-state retailers for the first year that they are required to comply, has been removed. Now, if an out-of-state retailer fails to comply with Colorado’s Notice and Reporting rules they will have to show that they “reasonably had no knowledge” of the requirement, to be subject to a maximum penalty.
- Unlike Washington, Colorado does not directly impose a duty to either collect sales tax or comply with their Notice and Reporting requirement on marketplace providers, such as Ebay. But, sellers (with gross sales of $100,000 or more), that utilize online marketplaces, are still required to comply with Colorado’s Notice and Reporting requirement regardless of their use of a marketplace provider platform. However, the permanent rule allows marketplace providers to satisfy the Notice and Reporting requirements on behalf of the sellers.
Colorado has indicated that online retailers must include certain elements in the transactional notice. Sample language would include the following:
[Name of retailer] does not collect Colorado sales or use tax. This purchase is not exempt from Colorado sales or use tax merely because it is made over the internet or by other remote means. The State of Colorado requires purchasers to (A) report all purchases that are taxable in Colorado and for which no tax was collected by the retailer and (B) pay tax on those purchases.
The permanent rule will be effective on January 1, 2018.
If your company makes sales into Colorado without collecting sales tax, contact Eide Bailly’s State and Local Tax Team for assistance with how to comply with Colorado’s Notice and Reporting requirements.
Starting January 1, 2018, similar to the State of Colorado, the State of Washington has created a new sales tax reporting requirement where retailers must issue a notice to the buyer saying “use tax” may be owed. Businesses with more than $10,000 in WA sales (compared to Colorado’s $100,000) will be required to comply. Remote sellers must either collect and remit tax or adhere to the reporting requirements.
The seller must notify the purchaser at the time of purchase and then send a follow-up notice by February 21 of the year following the year of the original transaction. A detailed notice must also be sent to the State of Washington by February 28 of the following year with an officer signed affidavit. In addition, “use tax may be owed” language needs to be included on seller advertising materials, which would include the seller’s website. The seller also needs to furnish year-end information to the purchaser and the state, to inform the purchaser that the State of Washington requires the purchaser to file a use tax return.
Penalties for non-compliance start at $20,000 and can grow to over $100,000.
But, the debate continues. Watch for additional information as states create ways to collect more sales and use tax from remote/online businesses for sales within their state. These new rules make for an added layer of compliance and complexity that businesses often overlook and/or lose track of. Contact your Eide Bailly professional or a member of our State and Local Tax Team for assistance.
The Ohio Department of Taxation issued a release stating that “substantial nexus” exists for Ohio sales and use tax purposes if the seller has gross receipts in access of $500,000 and if the seller uses in-state software to sell tangible personal property or services or enters into an agreement with another person to accelerate or enhance the delivery of the sellers website to others. The release (Sales Tax Information Release ST 2017-02) notes a difference between “in-state software nexus” and “network nexus”. In-state software refers to the use of software to sell or lease taxable tangible personal property or services in Ohio. Network nexus refers to the creation of a network to distribute property whether through taxable sales, storage, use or consuming in Ohio. If the benefit is realized in Ohio, sales tax is owed in Ohio. Anyone making taxable sales in Ohio will need to obtain a seller’s permit, collect tax, file returns and remit tax.
This is the latest update in the Sales Tax Nexus conversation. Ohio’s law appears to be more aggressive than South Dakota and similar to Massachusetts. If you’re doing business across state borders, you may need assistance ensuring compliance. Contact a member of our State and Local Tax Team to learn more.
The Wyoming Department of Revenue has given notice that it cannot enforce recently enacted tax legislation pending the outcome of legal action filed against some out-of-state remote sellers.
The new legislation requires the collection of Wyoming sales tax by a seller of tangible personal property, admissions and taxable services on sales into Wyoming based on a test of certain dollar levels and number of sales transactions. This legislation is similar to legislation being enacted in other states, as states continue to test the physical presence requirement of Quill v. North Dakota.
In the Wyoming legislation, a seller would be subject to collecting sales tax, if, in the previous or current calendar year:
- The seller’s sales into Wyoming exceed $100,000, or
- The seller has 200 or more separate transactions into Wyoming.
Are you doing business in the State of Wyoming or anywhere online? Contact a member of our State and Local Tax team to learn more about your compliance obligations and current disclosure options.
Due to overwhelming demand of businesses wanting to participate in the program, the Multistate Tax Commission has extended the application and registration deadlines for its voluntary disclosure initiative for online marketplace sellers from October 17 to November 1, 2017. The program provides relief from tax liability, interest, and penalties for sales and use tax, income/franchise tax, or both. Taxpayers filing a timely application are now allowed 30 days after receiving notice that the taxing state has signed a voluntary disclosure agreement to register with the state.
Read more about the MTC program in our first update and the expansion of states included in the program in our second update.
Please talk with your Eide Bailly tax professional or a member of our State and Local Tax Team if you’re considering participating the program
As previously noted, states’ push to obtain tax revenue from remote sales has been a hot topic this year. Recently, the South Dakota Supreme Court issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The court opinion stated that “Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.”
The State of South Dakota took action immediately and on October 2, 2017, filed a state petition asking the U.S. Supreme Court to reconsider the 25-year-old Quill opinion. This is the first state petition of its kind but unlikely to be the only one.
“The retail landscape significantly changed with the inception of the internet and access to online shopping. Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses,” said State Attorney General Marty Jackley in a press release announcing this petition.
Colorado and Alabama have pushed back against Quill Corp. v. North Dakota. Other states are imposing use tax notification and reporting requirements for out-of-state sellers in order to work around the physical presence precedent upheld by Quill. Some are enacting a tax on marketplace providers.
It’s clear that this will only be the start of cases asking the U.S. Supreme Court to revisit Quill.
The South Dakota Supreme Court on September 13, 2017 issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The Court stated:
“However persuasive the states [SD] arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it “has direct application in a case” and to leave to that Court “the prerogative of overruling its own decisions.”
The opinion was rendered on appeal by the State of South Dakota to challenge a lower court decision that the recently enacted South Dakota sales tax law requiring sales tax to be collected on sales where no physical presence was maintained by the seller was unconstitutional according to the US Supreme Court ruling in North Dakota v. Quill Corporation.
The quick, taking only 16 days, negative decision rendered by the South Dakota Supreme Court may have been what the State of South Dakota was hoping for. The decision now allows the State of South Dakota to move this highly sensitive sales tax issue once again back to the US Supreme Court to revisit the issue of physical presence now that many more years of internet activity will be available for their arguments. And, as the South Dakota Supreme Court noted, provide the US Supreme Court the opportunity to overrule their decision in Quill.
Contact your Eide Bailly professional or a member of our State and Local Tax team to discuss your sales tax filing obligations.