Changes to State-by-State Sales and Use Tax Laws
December 7, 2017 — As many states are still feeling the sting of lost revenue due to the rapid growth of e-commerce, many are looking for alternative ways to recoup these losses. The definition of "nexus" (or “substantial physical presence”) needed for sales tax collection is changing, and the states have found new ways to make sales and use tax compliance even more confusing. Out of state companies that are selling into these states and do not have nexus need to consider their options and analyze their sales to determine if and how to comply.
Now that the Colorado sales and use tax reporting law was upheld in the court of appeals, many other states are passing similar laws with steep penalties for not complying. To summarize, states are requiring remote sellers to either collect/remit sales tax or comply with notice and reporting requirements. Each state has different definitions for remote sellers, different minimum annual gross receipts thresholds, variances in the reporting requirements, and penalties.
States That Recently Passed Use Tax Notice and Reporting Requirements
Effective July 1, 2017, retailers who are not collecting sales or use tax either need to collect and remit Colorado sales tax or comply with Colorado’s use tax notice and reporting requirements. A non-collecting retailer is defined as selling tangible personal property to Colorado purchasers and does not collect Colorado sales or use tax.
Who does this apply to?
Non-collecting retailers whose total Colorado gross sales are more than $100,000 in a calendar year need to:
- Provide a Transactional Notice to all Colorado purchasers . A notice needs to be given to the purchaser that use tax may be due on the purchase and a use tax return should be filed (should be on website “checkout” or invoice).
- Provide an Annual Purchase Summary to all Colorado purchasers by January 31. This needs to include dates of purchase, amounts, and category of purchase and if the purchase is taxable. This summary must also notify the purchaser that they may need to file use tax returns.
- Provide an Annual Customer Information report to the Department of Revenue by March 1. An annual statement for each purchaser needs to be filed with details of who the purchaser is and the total dollar amount of purchases for the calendar year.
Note: Annual Purchase Summaries do not need to be sent if the purchaser’s annual total is less than $500.
What are the penalties for not complying?
- Failure to provide Transaction Notice: $5 penalty for each sale or transaction; $25,000 max penalty per year
- Failure to provide Annual Purchase Summary: $10 penalty for each required summary; $50,000 max penalty per year
- Failure to provide Annual Customer Information: $10 penalty for each required purchaser; $50,000 max penalty per year
Effective January 1, 2018, remote sellers, referrers and marketplace facilitators who are not collecting and remitting sales tax in Washington either need to collect and remit sales tax or comply with Washington’s use tax notice and reporting requirements. A remote seller is a seller, other than a marketplace facilitator or referrer, who does not have a physical presence in Washington and makes retail sales to Washington consumers.
Who does this apply to?
Non-collecting remote sellers whose total Washington gross receipts from retail sales are more than $10,000 in the current or preceding calendar year need to:
- Provide each purchaser with a statement that sales or use tax was not collected or remitted on each sale and that use tax may be required to be remitted to the Washington Department of Revenue, and instructions on how to find additional information from the Department.
- Provide an annual report to each purchaser by February 28 of each year. The report needs to include the date of purchase, type of purchase, and the price of each product.
- Provide the Washington Department of Revenue a report of all purchasers by February 28 of each year. The report must include the purchaser’s name, billing and shipping address, and the total amount of annual purchases. The report must also include an affidavit from the seller’s officer affirming that the seller made reasonable efforts to comply with the requirements.
Note: Washington has different reporting rules for Marketplace Facilitators and Referrers.
What are the penalties for not complying?
- Failure to provide notice: $20,000 max penalty MUST be assessed each year; the total number of failures does not matter.
- Failure to provide an annual report to the purchaser: $5,000 minimum penalty and increases depending on sellers’ Washington gross receipts.
- Failure to provide an annual report to the Washington Department of Revenue: $20,000 penalty, plus $25 for each purchaser not reported.
States that Have Passed Similar Laws
Pennsylvania. Effective 2/1/2018, $10,000 or more of Pennsylvania aggregate sales, notice and annual summaries must be given to purchasers and an annual report must be filed with the Department, with penalties starting at $20,000 or 20% of Pennsylvania sales.
Louisiana. Effective 7/1/2017, $50,000 Louisiana gross receipts, notice and annual summaries must be given to purchasers and an annual report must be filed with the Department.
Vermont. Effective 7/1/2017, notice must be provided to purchasers of more than $500 of sales, notice and annual summaries must be given to purchasers, and a penalty of $10 applies for each failure to send the notice.
Sorting Through the Confusion
States are moving fast to recoup lost sales and use tax revenue. It's critically important to evaluate your sales and use tax collection, remittance, and reporting policies and procedures to ensure compliance. While the picture is clear for companies operating within states that are passing new laws and regulations, out of state companies that are selling into these states and do not have nexus need to consider their options and analyze their sales to determine if they are at risk of non-compliance.
Teri Grahn, CMI
Teri Grahn, senior manager is the sales and use tax service area leader and is a certified member of the Institute for Professionals in Taxation. She educates and assists commercial entities with multi-state sales and use tax procedures and compliance, and works with clients to review internal records and practices and educates their staff on processes. She also helps clients navigate the unknowns of entering new states and jurisdictions by researching specific products and services, system and invoice set up to remain compliant with future transactions. Teri also supports clients through sales and use tax audits by investigating assessments and answering questions throughout the process. Teri works with clients in various industries including manufacturing and distribution, construction and real estate, and technology. Prior to joining Redpath and Company in 2003, Teri performed sales and use tax audits for the Minnesota Department of Revenue for 9 years.
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