Oklahoma Enacts Affiliate Nexus and Reporting Requirements Changes

Oklahoma Gov. Mary Fallin signed legislation enacting the Oklahoma Retail Protection Act of 2016, which includes affiliate nexus and reporting requirements provisions. This new Act modifies legislation originally passed in 2010 which included affiliate nexus and reporting rules.

The changes contained in the new legislation take effect on November 1, 2016. The legislation amends the definition of “maintaining a place of business in this state” to include utilizing or maintaining in Oklahoma (directly or by subsidiary) an office, distribution house, sales house, warehouse, or other physical place of business, whether owned or operated by the vendor or any other person (other than a common carrier), or having agents operating in Oklahoma, whether the place of business or agent is within the state temporarily or permanently or whether the person or agent is authorized to do business in the state; and the presence of any person (other than a common carrier) who has substantial nexus in Oklahoma and who:

• sells a similar line of products as the vendor 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 vendor;
• delivers, installs, assembles, or performs maintenance services for the vendor;
• facilitates the vendor’s delivery of property to customers in the state by permitting the vendor’s customers to pick up property sold by the vendor 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 vendor’s ability to establish and maintain a market in the state for the vendor’s sale.

The nexus presumption is rebuttable by showing that the person’s activities in Oklahoma are not significantly associated with the vendor’s ability to establish and maintain a market in the state for the vendor’s sales. Finally, any ruling, agreement, or contract between a person and the executive branch of Oklahoma, or any other state agency or department, that states, agrees, or rules that the person is not “maintaining a place of business in this state” or is not required to collect sales and use tax in Oklahoma despite the presence of a warehouse, distribution center, or fulfillment center in the state that is owned or operated by the vendor or an affiliated person of the vendor, is null and void unless specifically approved by a majority vote of each house of the Oklahoma Legislature.

The legislation also removes the following affiliate nexus criteria which existed in the 2010 legislation from the use tax code:

• the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a retailer maintaining a place of business within the state and the retailer sells the same or a substantially similar line of products as the related Oklahoma retailer and does so under the same or a substantially similar business name, or the Oklahoma facilities or Oklahoma employees of the related Oklahoma retailer are used to advertise, promote or facilitate sales by the retailer to consumers;
• the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a business that maintains a distribution house, sales house, warehouse or similar place of business in Oklahoma that delivers property sold by the retailer to consumers; or
• a retailer is part of a “controlled group of corporations” having a “component member” that is a retailer engaged in business in Oklahoma.

The use tax code is also amended to no longer provide that a “retailer” includes making sales of tangible personal property to purchasers in Oklahoma by mail, telephone, the Internet, or other media who has contracted with an entity to provide and perform installation or maintenance services for the retailer’s purchasers in Oklahoma. The use tax code is also amended to no longer state that the processing of orders electronically does not relieve a retailer of the duty to collect tax from the purchaser if the retailer is doing business in Oklahoma.

To incent remote sellers to register to collect Oklahoma use tax, the legislation expands the state’s out-of-state retailer use tax registration, collection, and remittance compliance initiatives to also apply to sales tax. Under the amended initiative, the state will not seek payment of uncollected use taxes from an out-of-state retailer who registers to collect and remit applicable sales and use taxes on sales made to purchasers in Oklahoma prior to registration under the initiative, provided that the retailer was not registered in Oklahoma in the 12-month period preceding November 1, 2016. Other changes concerning the compliance initiatives include the removal of provisions:

• prohibiting an out-of-state retailer’s registration to collect use tax under the initiative as a factor in determining nexus for other Oklahoma taxes,
• allowing out-of-state retailers registering under the initiative a vendor discount for timely reporting and remittance of use tax, and
• prohibiting the charging of a registration fee against an out-of-state retailer who voluntarily registers to collect and remit use tax under the initiative.

The legislation precludes assessments for uncollected sales and use taxes (including penalties and interest) for sales made during the period a retailer was not registered in Oklahoma, so long as registration occurs before May 1, 2017. This provision could be beneficial for companies with questionable or actual nexus in Oklahoma as this appears to be a full forgiveness amnesty for prior periods.

The Oklahoma Tax Commission will implement an outreach program under which online retailers and out-of-state retailers will be contacted for a review of their business activities to determine if their activities require the registration and collection of Oklahoma use taxes.

Changes to the 2010 reporting and notice requirements are also included in the new legislation. Out-of-state retailers who are not required to collect Oklahoma use tax and who make sales of tangible personal property to Oklahoma customers for use in the state, must, by February 1st of each year, provide each of these customers a statement of the total sales made to them during the preceding calendar year. The statement must contain language substantially similar to: “You may owe Oklahoma use tax on purchases you made from us during the previous tax year. The amount of tax you 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.”The statement cannot contain any other information that would indicate, imply, or identify the class, type, description, or name of the products sold. The 2010 legislation had a sales threshold which no longer applies. (H.B. 2531, Laws 2016)