Washington State Simplifies Its Sales and B&O Tax Nexus Rules
On March 14 2019, Washington Governor Jay Inslee signed SSB 5581 into law. The new legislation seeks to unify and simplify the state’s nexus provisions for its business and occupation (B&O) and retail sales taxes.
Effective immediately, remote sellers (out-of-state businesses with no physical presence in Washington) no longer need to consider whether they meet the 200 or more annual transactions threshold when determining if they are required to collect and remit Washington sales tax.
Instead, the law will use $100,000 in sales as a marker, which aligns with the threshold that the U.S. Supreme Court spoke favorably of in its 2018 South Dakota v. Wayfair ruling. Here’s the new law in summary:
Washington’s SSB 5581 law
- Ultimately unifies the economic nexus sales threshold for retail sales tax and all B&O tax classifications at $100,000
- Eliminates the 200 transactions threshold from the retail sales tax economic nexus threshold
- Eliminates click-through nexus
- Eliminates use tax notice and reporting
These changes will be phased in over time as follows:
Now through June 30, 2019
Beginning March 14, 2019, non-Washington sellers are required to register with the Department of Revenue to collect and remit sales tax if they have more than $100,000 in annual retail sales to Washington customers. The 200 transaction threshold is repealed, and “click-through” nexus is eliminated.
July 1, 2019 – December 31, 2019
On July 1, 2019, Washington’s use tax notice and reporting regime is repealed.
Beginning January 1, 2020
On January 1, 2020, the economic nexus threshold for the B&O tax will be reduced for wholesaling, intangibles, and service activities from $285,000 to the $100,000 threshold.
The B&O tax nexus thresholds will also be eliminated for companies that have at least 25 percent of property, payroll, or sales in Washington.
In addition, the receipt categories that are used to measure the state’s $100,000 economic nexus threshold for retail sales tax purposes will expand to include all gross income in Washington, rather than merely retail sales.
Therefore, starting January 1, 2020, Washington nexus determinations for both B&O tax and retail sales tax, and for all types of business activities, should be based on the $100,000 revenue threshold. Physical presence will also establish nexus for all tax classifications.
A decade of expanding economic thresholds
Washington became one of the first states to initiate the use of economic nexus thresholds (for its B&O tax) in 2010. Over the last 10 years, Washington has systematically expanded its economic thresholds to capture a greater pool of out-of-state sellers. But a confusing mix of economic and physical presence nexus criteria applied for different business activities and different tax types. This new law aims to simplify and clarify that mix of laws.
More Washington State legislative changes may be ahead
Additional tax increases are now under consideration by the Washington State Legislature, including a capital gains tax, an increased services B&O tax rate for technology companies, and prorated rate increases to the state’s real estate excise tax.
Income taxes in Washington, presumably like the newly-proposed capital gains tax, have consistently been ruled unconstitutional under the state’s constitution. (For example, the recently abolished Seattle city-level income tax.) The passing of a capital gains tax will surely face a similar court battle. We will continue to monitor these proposals and keep you updated on their effect on your business.
How we can help
Some companies may be enticed to simply register and file taxes based on this new law, but businesses with Washington activities should perform due diligence on prior period nexus exposure for potential tax liabilities. CLA’s state and local tax professionals offer an historical nexus study to analyze prior period activities to help you determine if that activity created nexus for B&O or sales tax purposes. We also offer a post-Wayfair sales tax nexus assessment.