United States

Washington state codifies and expands economic nexus requirements

INSIGHT ARTICLE  | 

On March 14, 2019, Gov. Jay Inslee signed Substitute Senate Bill 5581, codifying the Washington State Department of Revenue’s previously announced rule that remote sellers with sales exceeding $100,000 or 200 transactions into the state of Washington are required to collect sales tax.

Sales and use tax nexus

Recall that on June 21, 2018, the U.S. Supreme Court’s decision in South Dakota v. Wayfair overturned the long-standing “physical presence” nexus standard. In response, the states began to impose sales and use tax collection and remittance responsibilities on remote sellers based solely on out-of-state sellers’ economic presence within their borders. The Washington Department of Revenue provided guidance on Aug. 3, 2018, in the wake of Wayfair, that certain remote sellers exceeding $100,000 in sales or 200 or more transactions would be required to collect sales tax beginning on Oct. 1, 2018. This guidance was in addition to the states election to collect the sales tax or comply with use tax notice and reporting when sales exceeded $10,000, originally enacted on Jan. 1, 2018.

Senate Bill 5581 codifies and expands the department’s guidance requiring out-of-state retailers with at least $100,000 in gross income of the business from all retail sales made by the seller or 200 transactions into the state of Washington from Oct. 1, 2018 through March 13, 2019 to collect sales tax. Effective March 14, 2019, out-of-state retailers exceeding the transaction threshold alone are no longer required to collect retail sales tax, leaving in place the $100,000 sales threshold. Additionally, Senate Bill 5581 eliminates the election to comply with use tax notice and reporting requirements in lieu of collecting sales tax.

Additionally, marketplace facilitator provisions were amended. Beginning July 1, 2019, marketplace facilitators are required to provide sellers the necessary information needed for the seller to file their excise tax return. Further, marketplace facilitators are required to collect and remit all other taxes and fees beginning Jan. 1, 2020.

Business and occupation tax

Senate Bill 5581 lowers the economic nexus thresholds for Business and Occupation (“B&O”) tax to $100,000, from $267,000. The previous thresholds of property, payroll, and the 25 percent of total sales have been repealed making $100,000 of cumulative gross receipts the sole threshold for B&O reporting as of Jan. 1, 2019.

Another notable revision includes elimination of the B&O exemption for sales of goods in “import commerce.” Effective March 14, 2019, foreign businesses meeting nexus thresholds may have a B&O reporting obligation, as well as a retail sales tax collection requirement.

Takeaways

Businesses with $100,000 of sales into Washington now have both a B&O and sales tax compliance obligation. The B&O reporting process requires diligence and may catch taxpayers off guard who are reporting for the first time. Additionally, with the frequent changes to Washington’s remote seller sales tax nexus provisions over the last year, taxpayers should consider a thorough review of their sales and transactions to verify compliance with the various provisions.

Since Wayfair was decided, a majority of states that impose a statewide general sales tax now enforce remote seller economic presence nexus thresholds. Multistate taxpayers with questions about compliance under the ever-changing sales and use tax nexus landscape should speak to their tax advisers on how to diligently track and comply with these new provisions.

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