On Aug. 1, 2019, The Kansas Department of Revenue released Notice 19-04, Sales Tax Requirements for Retailers Doing Business in Kansas, adopting an Oct. 1, 2019 enforcement date for economic sales tax nexus.
The Notice explains that, under existing law, the department may enforce sales and use tax collection requirements on remote sellers with no physical presence in the state. The Notice defines a “remote seller” as a retailer that sells tangible personal property or services into the state where it does not have physical presence.
With this guidance, Kansas has become the first state to adopt economic sales tax nexus without a small-seller exemption. Unlike the rules in more than 40 other states, the department provided no safe harbor – neither a sales nor a transaction threshold – to shelter a business with less economic activity in the state from the collection requirements. It has been reported that the department’s position is that only the legislature has the authority to create a small-seller exemption. Earlier this year, Kansas Governor Laura Kelly vetoed a tax bill that included a $100,000 economic sales tax nexus threshold, although that veto was primarily for other reasons.
The Notice further states that the department will not enforce the collection requirements on remote sellers for sales made into the state prior to Oct. 1, 2019.
Finally, the Notice defines a “marketplace facilitator” and recommends that facilitators contact the department to enter into voluntary compliance agreements. The guidance does not appear to subject marketplace facilitators to the remote seller collection requirements on their third-party sales.
Takeaways
Recall that the Supreme Court’s decision in South Dakota v. Wayfair did not specifically address the constitutionality of South Dakota’s $100,000 sales or 200 transaction economic sales tax nexus threshold, nor was that standard approved as a constitutional minimum. The decision discussed three key features of the South Dakota law that appeared designed to prevent discrimination against or undue burdens upon interstate commerce: 1) a small-seller safe harbor, e.g., the $100,000 of sales or 200 or more transactions threshold, 2) prospective enforcement, and 3) administrative and compliance simplification through the state’s membership in the Streamlined Sales and Use Tax Agreement. However, the significance of those features was never constitutionally analyzed because the case was settled on remand to the South Dakota state courts.
Remote sellers making sales of tangible personal property or service in Kansas should recognize that the features discussed in Wayfair, while technically dicta (discussion not part of the central holding of the case), provides a roadmap for the courts to analyze future challenges to state economic sales tax nexus provisions. Remote taxpayers have protections inherent in the Due Process Clause and the Commerce Clause of the U.S. Constitution. As Kansas is the first state to adopt economic sales tax nexus without a small-seller exemption, it would not be unexpected for the guidance to be challenged in the next few months. Taxpayers making sales or providing services into Kansas should speak to their tax advisers about this new economic sales tax nexus guidance.
