Colorado Publishes Permanent Rule for Notice and Reporting Requirements

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Transactional Notice

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.

Washington Sales/Use Tax Reporting Required

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.

Compliance 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.

Steep Penalties

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.

New Tax Laws Enacted in CT & MS

As more businesses enter the online marketplace to sell goods across borders, states are creating laws to capture sales tax for online transactions. Recently, both Connecticut and Mississippi have enacted new tax laws targeting out-of-state e-commerce sellers. Check out the following articles to learn more:

Connecticut to Tax Web Cookies
Mississippi to Tax Out-of-State Sellers

Mixed reception for bill requiring “physical presence” for state taxation.

Industry representatives had praise for a bill that would prevent states from taxing businesses with no in-state physical presence in Congressional hearings yesterday. State government representatives, not so much.

National Taxpayers Union representative Andrew Moylan testified for the Bill, H.R. 2887:

  1. First, it says that no state can tax or regulate the activity of a person or business in interstate commerce unless that person or business is physically present in the state.
  2. Next, it defines physical presence as including property, employees, and other markers of genuine connection to a state.
  3. Then it goes on to define what does not constitute physical presence, including things like tangential advertising relationships, presence in a state for less than 15 days, and other kinds of transitory connections that states have used as avenues of tax collection.
  4. It protects non-sellers, such as intermediaries that are neither the buyer or seller in the case of the sale of an item, from being ensnared in tax or regulatory schemes.
  5. Next, it places original jurisdiction in federal district courts to help ease some of the morass of state litigation.
  6. Finally, it defines the terms it uses in more specific fashion.

South Dakota state Senator Deb Peters, appearing on behalf of the National Conference of State Legislators, disagreed, testifying that the bill “is one of the most coercive, intrusive, and preemptive legislative measures ever introduced in Congress.”

Joseph Henchman of the Tax Foundation testified that while the bill addresses real problems with overreaching state taxation, it leaves the collection problem of internet sales to in-state residents unsolved. Also: “…the bill’s language of prohibiting state regulation of interstate activity even where ‘otherwise permissible under Federal law’ arguably might disrupt the enforceability of interstate compacts previously approved by Congress.”

Given the strong opposition of state legislatures to the bill, it has an uncertain future. It is certain that state taxation of out-of-state businesses remains a very real problem for taxpayers as states become more aggressive in pushing the unclear boundaries of their taxing authority.

If you have questions on how to deal with your state taxation issues, contact Eide Bailly’s State and Local Tax team.

Washington sales tax bill targets out-of-state sellers and third-party marketplaces.

Washington Governor Jay Inslee has signed legislation to help the state collect sales and use taxes from online transactions. The bill, H.B. 2163, combines elements of recent legislation in Colorado and Minnesota.

Washington follows Colorado’s lead by requiring vendors selling within the state to either collect sales tax from Washington buyers or report them to the state for assessment of use taxes. It follows Minnesota’s lead by imposing the same requirement on “online facilitators,” such as Amazon, eBay and Etsy. Vendors selling only through such third-party marketplaces will not have to comply separately.

A similar rule is applied to “referrers.” This rule applies to any taxpayer who:

…contracts or otherwise agrees with a seller to list or advertise for sale one or more items in any medium, including a web site or catalog; receives a commission, fee, or other consideration from the seller for the listing or advertisement; transfers, via telephone, internet link, or other means, a purchaser to a seller or an affiliated person to complete the sale; and does not collect receipts from the purchasers for the transaction

Vendors, third-party facilitators and referrers who opt to not collect sales taxes have to refer their customers to Washington revenue officials. They also must post prominent notices on their websites of the requirement for Washington customers to remit use taxes on their purchases.

Online vendors and marketplaces are subject to the rules if their annual sales in Washington exceeded $10,000 in the previous calendar year. The cutoff for referrers is gross income from Washington referral sources exceeding $267,000. The rules take effect January 1, 2018.

Reports say litigation is likely, but so far efforts to overturn notification requirements in court have failed. Taxpayers who might be affected should be considering how to comply with the new rules. Contact a member of our State and Local Tax team to learn more.

 

 

Washington Tradeshow Nexus

The State of Washington has carved out a nexus safe-harbor for out-of-state representatives attending qualifying trade shows/conventions.

Effective July 1, 2016, for purposes of Washington’s Sales and Use Tax, and also the Business and Occupation (B&O) Tax, the Washington Department of Revenue may not make a determination of nexus based solely on the attendance or participation of one or more representatives at a single trade convention per year in Washington.

So, what does this mean for businesses? Without more, businesses that attend/exhibit (but not sell) at only one trade convention, not marketed to the general public, per year, will not be deemed to have a registration and a tax reporting requirement for purposes of Washington Sales and Use, and B&O tax.

Click here to read Washington’s Special Notice.

Or, click here to view Eide Bailly’s “Understanding Nexus” video.