Washington State Expands Reporting and Tax Filing Requirements to More Out-of-State Businesses
On July 7, 2017, Washington’s governor signed House Bill 2163 that includes remote seller reporting requirements for use tax purposes and extends economic nexus to retailing businesses for business and occupation (“B&O”) tax purposes.
Use tax reporting requirements
New legislation in Washington, effective January 1, 2018, affects remote sellers, internet retailers, and electronic marketplace operators that make or facilitate sales to customers in Washington by requiring them to either elect whether to collect and remit sales tax or comply with use tax notice reporting requirements. The bill cited Colorado’s adoption of a similar law, recently upheld in federal court, which may have helped to clear the path for Washington’s legislation.
The legislation impacts remote sellers with at least $10,000 in Washington sales and in-state affiliates called “marketplace facilitators” and “referrers” that meet newly-created definitions related to in-state selling activities.
A marketplace facilitator contacts sellers to help them sell their products through an electronic or physical marketplace that the facilitator owns. A marketplace facilitator with at least $10,000 of gross receipts from retail sales (either its own sales or sales made as an agent of a marketplace seller) sourced to Washington must elect to either collect and remit Washington sales tax, or comply with the use tax reporting requirements.
A referrer is a person who contracts or otherwise agrees with a seller to advertise the seller’s items in any medium, who gets a fee or commission from the advertisement, who transfers the buyer to the seller to complete the sale, and who does not collect payment from the buyer. Referrers are subject to this election when their gross income earned from referral services exceeds $267,000 of apportioned gross income to Washington.
If a remote seller, referrer, or marketplace facilitator elects not to register with the Washington Department of Revenue and collect and remit sales tax, the presumption will be that the company has elected to comply with the notice and reporting requirements which include:
- Posting a conspicuous notice on its marketplace, platform, website, catalog, or similar medium that informs Washington purchasers that a sales or use tax is due on certain purchases, that the state requires the purchaser to file a use tax return, and that the notice is provided under the requirements of the new law; and
- Providing a notice to each consumer at the time of each retail sale that sales and use tax is not collected, that the buyer may be required to remit the use tax, and instructions for obtaining additional information on how to remit the tax.
Penalties for noncompliance start at $20,000 and can escalate to more than $100,000.
Retailing B&O tax economic nexus
In 2010, Washington enacted market-based economic nexus criteria for out-of-state service providers. In 2015, the state expanded the substantial nexus definition to include remote wholesalers with no physical presence in the state.
Washington’s economic nexus criteria now apply to more companies with sales to Washington customers.
Now, with retroactive application to July 1, 2017, remote sellers, including retailers without physical presence in Washington, that meet any of the following criteria in Washington are required to register and pay B&O tax (the state’s privilege tax on gross receipts):
- Payroll of $53,000
- Property of $53,000
- Gross receipts to Washington customers of $267,000
Washington continues to implement rules that require more out-of-state businesses to pay B&O tax.
How we can help
All non-Washington businesses that have any activity with customers in Washington should check to see if there is a filing requirement. Our state and local tax professionals can help you map out your filing obligations, mitigate past exposures, and put a plan in place to help keep your business compliant.