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.

 

 

2017 State Business Tax Climate Index

The Tax Foundation has recently published their 2017 State Business Tax Climate Index. This is a great tool for businesses and taxpayers to compare how well their state’s tax structures stack up against other states. The number one state in this year’s index is Wyoming, and the worst-ranked state is New Jersey. Click here to learn more and see how your state ranks.

Midwest SALT Tour – Sales Tax Update

The final leg of our Midwest SALT Tour through Mankato, Sioux Falls, and Fargo will take place November 8, 9, and 10. This Sales Tax Update will discuss current legislation and the ways in which taxes impact your business, as well as what you can do to limit your exposure and potential liabilities. For more information and to register for one of these sessions, visit www.eidebailly.com/SALTtour.

Significant Changes in Louisiana for Income/Franchise & Sales/Use Tax

As a result of a $900 million budget shortfall, Louisiana lawmakers have passed the following tax measures aimed at bridging the revenue gap.  Some of the more important changes are as follows:

Income/Franchise Tax Changes (effective 1/1/2017):

  1. Expansion of franchise tax:
    1. “Domestic Corporation” now includes partnerships, joint ventures, and LLCs electing to be taxed as C Corporations for federal income tax purposes.
    2. Expansion of franchise tax nexus for out of state taxpayers – nexus for corporations that own interest in partnerships with Louisiana operations.
  2. Net Operating Loss (NOL) Reduction – NOL deduction cannot exceed 72% of Louisiana taxable income.
  3. NOL Carryover ordering – must use loss carryovers starting with the loss for the most recent taxable year. Older NOLs may expire since taxpayers would have to first use newer NOLs.
  4. Modification of corporation income tax rate to flat rate of 6.5% (contingent).
  5. Addback of intercompany interest, intangible expenses and management fees unless certain exceptions are met.
  6. Modification of federal income tax deduction (contingent).

Sale/Use Tax Changes:

  1. Effective 4/1/16 through 6/30/2018, the legislation increases the sales tax rate by 1% (bringing the rate to 5%).  Referred to as the “Clean Penny” Legislation, the legislation includes its own set of exclusions and exemptions apart from the exclusions and exemptions that apply to the original 4% sales tax rate (referred to as “Old Penny”).
  2. Old Pennies (the original 4% sales tax) – law modifies the list of exclusions and exemptions, specifically as they relate to the 2% basic rate (sub component of the 4% tax).  It is important to note the inconsistencies between the exclusions and exemptions offered under the Clean Penny and Old Penny laws.
  3. Affiliate Nexus provisions – the legislations drastically expands the definition of a “dealer.”

For additional background regarding the legislation, please visit the tax foundation website.

Colorado Sales and Use Tax Notice & Reporting Requirements

Colorado’s sales and use tax notice and reporting requirements for remote retailers…Still Alive! Previously, the District Court granted DMA’s motion for summary judgement and granted an injunction against the Department of Revenue from enforcing such requirement.  However, on February 22 the U.S. Court of Appeals for the Tenth Circuit held that the requirements do not violate the Commerce Clause.  In other words, (depending on any further litigation/appeals) Colorado can reinvigorate its efforts to force certain out-of-state retailers selling to in-state customers to:

1) notify Colorado customers that they are obligated to self-report and remit use tax on their purchases;

2) to provide Colorado customers with an annual report, detailing a customer’s purchases in the previous year;

3) notify the customer that the retailer was required to report the customer’s name and amount of purchases to the Department; and

4) report to the Department, the name, billing address, shipping address and total amount of purchases made by Colorado customers.

While Colorado has led the charge, many others states may jump on the reporting requirement band wagon.

Read Sutherland’s full legal alert outlining the background on Colorado’s Use Tax Reporting Requirements, District Court Ruling, Tenth Circuit Ruling, and the possibility of Future Congressional Intervention here.