Washington has enacted legislation that creates marketplace nexus and reporting requirements provisions and expands the state’s economic nexus provision. Effective January 1, 2018, remote sellers, referrers and marketplace facilitators must elect to either collect and remit Washington sales or use tax on taxable sales into Washington or comply with notice and reporting requirements. The requirements apply to remote sellers or marketplace facilitators with gross receipts from retail sales sourced to Washington in the current or preceding calendar year of at least $10,000. A referrer is subject to the requirements if during the current or immediately preceding calendar year, gross business income received from referral services apportioned to Washington, whether or not they are subject to sales and use tax, and from retail sales sourced to Washington, if any, is at least $267,000. This is in addition to its Click Through and Affiliate nexus provisions which were passed in 2015. Until January 1, 2020, the requirements do not apply with respect to the retail sale of digital products and digital codes, other than specified digital products and digital games and digital codes used to redeem specified digital products and digital games, by a marketplace seller through a marketplace facilitator or directly resulting from a referral.
If the election is to comply with the notice and reporting requirements, a seller, other than a referrer acting in its capacity as a referrer, subject to the notice and reporting requirements of this section must post a conspicuous notice on its marketplace, platform, web site, catalog, or any other similar medium that informs Washington purchasers that:
The seller must provide a notice to each consumer at the time of each retail sale that must include the following information:
The notice must be prominently displayed on all invoices and order forms including, where applicable, electronic and catalog invoices and order forms, and upon each sales receipt or similar document provided to the purchaser, whether in paper or electronic form.Sellers subject to the notice and reporting requirementsmust also provide an annual report no later than February 28 of each year to each Washington purchaser stating that the seller did not collect sales or use tax on sales and that the consumer may be required to remit such tax directly to the department and including details on the purchaser’s transactions. This must be sent for first class mail if a billing or shipping address is known and if not known then via email. An annual report must also be filed with the department by February 28 of each year that includes purchasers’ information (including billing and shipping addresses and total dollar amount of the purchases) and an affidavit from a seller’s officer affirming that reasonable efforts were made to comply with notice requirements.
A referrer subject to the notice and reporting requirementsmust post a conspicuous notice on its platform informing Washington purchasers that:
A referrer must send a notice by February 28 of each year to each marketplace seller to whom the referrer transferred a potential purchaser located in Washington during the previous year. The notice must state that the seller must collect and remit retail sales or use tax on all taxable retail sales sourced to Washingtonor comply with notice requirements. A referrer must also submit an annual report to the department by February 28 of each year that includes a list of sellers who received notice and an affidavit from a referrer’s officer stating that the referrer made reasonable efforts to comply with notice and reporting requirements.
The department MUST assess a penalty of $20,000 in addition to any other penalties against any seller, other than a referrer acting in its capacity as a referrer, or to a referrer that fails to provide notice to consumers on each order and on their marketing and sales materials. This penalty can be assessed once per year regardless of the number of notices a seller fails to provide. Additional penalties ranging from $5,000 to $100,000 plus $20,000 for each $50,000 in sales above $300,000 in sales for failure to issue the annual notice to consumers must be assessed. The penalty for failure to provide the annual statement to the Department will be assessed at $25 per consumer not included in the report with a minimum penalty of $20,000. All these penalties are cumulative and interest will accrue on the penalties. It is apparent that Washington is “encouraging” registration and collection in lieu of the notice option by imposing such harsh penalties for non-compliance. There are provisions for a conditional waiver of penalties if the seller enters into an agreement with the state to come into compliance with the provisions as well as some limited penalty relief due to circumstances beyond the seller’s control or due to reasonable cause and not willful neglect. There are also provisions for personal liability related to the tax for a variety of reasons (including accepting an invalid exemption certificate) – not just related to the new remote seller provisions.
A positive component of the bill is a limitation on class action lawsuits against retailers related to the collection of sales tax. Consumers still have rights to file refunds directly with the department.
Beginning July 1 2017, economic nexus for Washington business and occupation (B&O) tax purposes is extended to persons engaged in retail sales as long as the person has more than $267,000 in receipts from Washington, more than $53,000 property or payroll in the state, or at least 25 percent of the person’s total property, payroll, or total receipts in Washington. A person who has a substantial nexus with Washington in the current calendar year based solely on the person’s property, payroll, or receipts in Washington during the current calendar year, is subject to the B&O tax imposed for the current calendar year only on business activity occurring on and after the date that the person established a substantial nexus with Washington in the current calendar year. For our previous news item on Washington’s economic nexus provisions, see Washington Enacts Click-Through and Economic Nexus Provisions. (H.B. 2163, Laws 2017)
UPDATE: The Washington Department of Revenue has issued helpful information regarding the obligations for remote sellers created under this legislation. For more information, visit the Washington Department of Revenue webpage.
UPDATE: The Washington Department of Revenue has revised its administrative rules on interstate sales of tangible personal property and minimum nexus thresholds to reflect the economic nexus thresholds that became effective July 1, 2017 for Washington B&O tax purposes. Additionally, Washington has revised its trailing nexus standard to reflect that if a person stops the business activity that created nexus in Washington, nexus will continue in the calendar year that follows any calendar year in which the person met any of the specified statutory nexus requirements, including the economic nexus threshold requirements. (WAC 458-20-193 and WAC 458-20-19401, Washington Department of Revenue, effective April 6, 2018)