Oklahoma enacts remote seller sales tax bill
TAX ALERT |
UPDATE: On May 17, 2016, Oklahoma Gov. Mary Fallin signed into law HB 2531. Effective Nov. 1, 2016, Oklahoma will apply expansive affiliate nexus rules and an in-state sales disclosure requirement to remote sellers. Businesses that currently sell taxable goods and services to Oklahoma purchasers and do not collect and remit sales tax should review their activities within state and determine the impact of the enactment of HB 2531 on their sales tax compliance responsibilities.
On April 21, 2016, the Oklahoma Senate approved a floor substitute to HB 2531, which was previously passed by the Oklahoma House on March 10, 2016. HB 2531, as originally passed by the House was intended to expand the state’s reach in requiring remote sellers to collect and remit sales tax on sales to in-state customers by implementing broader in-state affiliate nexus attribution rules. The Senate’s floor substitute modified these attribution rules by eliminating any requirement for the in-state party to be related to the remote-seller, and added a requirement that remote sellers that are not caught up in the state’s expanded nexus rules to annually send a letter to each in-state customer stating (1) the total purchase price of all purchases made during the year on which sales tax was not collected, and (2) that the purchaser may owe use tax on those purchases.
Pursuant to Section 2 of the Oklahoma Senate’s floor substitute to HB 2531, the definition of the term ‘maintaining a place of business in this state’ is modified to attribute to a remote seller the presence of any person, other than a common carrier acting in its capacity as such, that has substantial nexus in Oklahoma and that:
- Sells a similar line of products as the remote seller and does so under the same or a similar business name
- Uses trademarks, service marks or trade names in Oklahoma that are the same or substantially similar to those used by the remote seller
- Delivers, installs, assembles or performs maintenance services for the remote seller
- Facilitates the vendor's delivery of property to customers in Oklahoma by allowing the remote seller's customers to pick up property sold by the remote seller at an office, distribution facility, warehouse, storage place or similar place of business maintained by the person in Oklahoma, or
- Conducts any other activities in Oklahoma that are significantly associated with the remote seller's ability to establish and maintain a market in Oklahoma for the remote seller's sales
The Senate’s floor substitute removes any requirement for the in-state person to be a member of the remote seller’s affiliated or consolidated group, resulting in the potential for broad attribution from unrelated parties, such as click-through affiliates. Attribution is rebuttable upon a showing that the activities of the person within Oklahoma are not significantly associated with the remote seller's ability to establish and maintain a market in the state for the remote seller's sales.
Pursuant to Section 4 of the Oklahoma Senate’s floor substitute to HB 2531, on Feb. 1 of each year, a remote weller will be required to send to each in-state purchaser a letter containing the following information:
"You may owe Oklahoma use tax on purchases you made from us during the previous tax year. The amount of tax you may owe is based on the total sales price of [insert total sales price] that must be reported and paid when you file your Oklahoma income tax return unless you have already paid the tax."
This remote seller disclosure requirement is similar in approach to the reporting requirements imposed by Colorado under Colo. Rev. Stat. section 39-21-112, which the U.S. Court of Appeals for the Tenth Circuit ruled did not violate the Commerce Clause of the U.S. Constitution. For more information regarding this decision, please see our alert. Interestingly, unlike the Colorado reporting requirements, Oklahoma has opted not to require remote sellers to provide lists of in-state customer’s names, addresses, items purchased and specific amounts paid. As a result, if this bill should ultimately pass, Oklahoma’s disclosure approach may draw substantially less privacy concerns than Colorado’s.
By making these amendments to HB 2531, the Oklahoma Senate was required to send the floor substitute bill back to the Oklahoma House for approval, which is likely given the broad support for the original bill in the House and concurrent compromise negotiations between the Senate, the House and the Oklahoma Tax Commission. If ultimately signed by the governor and enacted, these provisions would take effect on Nov. 1, 2016. Remote sellers with Oklahoma customers should review the provisions of the Oklahoma Senate’s floor substitute to HB 2531, and consider the impact of the proposed broader nexus provisions and disclosure requirements on their business.