Kentucky Enacts Economic Nexus Legislation

Effective Date: October 1, 2018

Threshold: Gross receipts exceed $100,000 or 200 or more separate transactions

Measurement Date: Previous or current calendar year

Includable Transactions: Gross sales; Marketplace sales included towards the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: First of the calendar month that is at the most 60 days after either threshold is met

The Kentucky Legislature has overridden Gov. Matt Bevin’s veto of a tax bill which contains economic nexus provisions. Effective July 1, 2018, the definition of a “retailer engaged in business in this state” that is required to collect and remit Kentucky sales tax is expanded to include any remote retailer selling tangible personal property (TPP) or digital property delivered or transferred electronically to a purchaser in Kentucky if:

• The remote retailer sold TPP or digital property that was delivered or transferred electronically to a purchaser in this state in 200 or more separate transactions in the previous calendar year or the current calendar year; or
• The remote retailer’s gross receipts derived from the sale of TPP or digital property delivered or transferred electronically to a purchaser in Kentucky in the previous calendar year or current calendar year exceeds $100,000.

The legislation also adds the following marketplace sales definitions to Kentucky sales and use tax law.

• “Marketplace” means any physical or electronic means through which one or more retailers may advertise and sell or lease TPP or digital property, such as a catalog, Internet Web site, or television or radio broadcast, regardless of whether the tangible personal property, digital property, or retailer is physically present in this state;
• “Marketplace facilitator” means a person that facilitates the retail sale of TPP or digital property by listing or advertising the TPP for sale at retail and either directly or indirectly through agreements or arrangements with third parties, collects the payment from the purchaser, and transmits the payment to the person selling the property;
• “Marketplace retailer” means a person that has an agreement with a marketplace facilitator and makes retail sales of TPP or digital property through a marketplace;
• “Referrer” means a person that: contracts with a retailer or retailer’s representative to advertise or list TPP or digital property for sale or lease; makes referrals by connecting a person to the retailer or the retailer’s representative, but not acting as a marketplace facilitator; and received in the prior calendar year or the current calendar year, in the aggregate, at least $10,000 in consideration from remote retailers, marketplace retailers, or representatives of remote retailers or marketplace retailers for referrals on retail sales to purchasers in this state.

“Remote retailer” means a retailer with no physical presence in Kentucky. “Remote retailer” does not include a marketplace facilitator or a referrer. These provisions mirror the South Dakota law currently under evaluation by the U.S. Supreme Court.  If the South Dakota law is upheld, it is presumed this will be valid.  If the South Dakota law is found unconstitutional, we expect the Kentucky provision to be challenged.  (H.B. 366, Laws 2018, effective April 13, 2018)

UPDATE: On June 27, 2018, the Kentucky Department of Revenue issued an announcement regarding the South Dakota v. Wayfair decision. In the announcement, the DOR states that “…the Supreme Court decision positions Kentucky to move forward with implementation of these provisions for remote sellers with sales into the state” and “Remote sellers that meet the threshold transaction or receipt thresholds should prepare to begin the registration process for collection of Kentucky sales and use tax on a prospective basis.”

UPDATE: Kentucky has created a “Remote Retailers Frequently Asked Questions” page with helpful information regarding remote seller’s obligations. Click here to view the page.

UPDATE: Kentucky will be giving remote retailers some time to comply with their economic nexus legislation. “The Department recognizes there may be some planning and preparatory steps remote retailers may need to address before collections begin.” The Department updated their announcement on July 30 saying, “Registrations should be completed with sales and use tax collections beginning by October 1, 2018.”

UPDATE: Per H.B. 354 (the state’s marketplace facilitator bill) and Kentucky Revenue Statute 139.430, any remote retailer that meets either threshold described above shall register for a sales and use tax permit and collect the tax imposed from the purchaser by the first day of the calendar month that begins no later than thirty days after either threshold is reached.

UPDATE: Effective July 1, 2021, remote sellers and marketplace facilitators that exceed either of Kentucky’s economic nexus thresholds must register for a sales and use tax permit and begin collecting tax no later than the first day of the calendar month that is at the most 60 days after either threshold is met. Previously, registration was required by the first of the month following 30 days after either threshold is met. Read our news item for more details.