Washington Enacts New Economic Nexus Rules for B&O and Sales Taxes
Recent legislation in Washington will expand Business & Occupation Tax nexus to capture more businesses and imposes certain reporting requirements on marketplace facilitators.
By Jeff Glickman, SALT Partner
On March 14, 2019, Washington Governor Inslee signed into legislation Substitute Senate Bill 5581, which made changes to certain economic nexus provisions under the states Business & Occupation (B&O) and sales taxes and codified the Department of Revenue’s (the “Department”) prior guidance on Wayfair-related collection obligations for sellers and marketplace facilitators. A brief summary of the significant provisions is provided below.
Codification of Wayfair Guidance and Elimination of Transaction Threshold/Use Tax Reporting
The legislation codifies the Department’s prior guidance that between Oct. 1, 2018 and Dec. 31, 2019, any retailer or marketplace facilitator is required to collect and remit sales tax if such entity’s retail sales in Washington exceed $100,000 or if such entity engages in 200 or more separate retail transactions with in-state customers. However, effective beginning March 14, 2019, the 200-transaction threshold is eliminated as a basis for sales tax economic nexus.
For a marketplace facilitator, the thresholds include its own sales/transactions as well as those of marketplace sellers that sell through the marketplace facilitator’s marketplace, even if such marketplace seller on its own does not meet those thresholds.
Finally, effective beginning July 1, 2019, the use tax reporting obligation is eliminated for those sellers with between $10,000 and $100,000 of sales that elected to report use tax information as opposed to collect and remit sales tax.
New Nexus Thresholds
Effective Jan. 1, 2020, the B&O and sales tax nexus statutes are aligned. A business will have nexus in Washington under its B&O and sales taxes if its “cumulative gross receipts” from the state are over $100,000 in the current or immediately preceding calendar year.
For B&O tax in 2019, this threshold is $285,000, and applies only to businesses engaged in retailing, wholesaling, and/or those earning apportionable income. The new law now subjects to B&O tax any business with over $100,000 of cumulative gross receipts. In addition, the prior B&O nexus thresholds related to property and payroll, as well as the rule creating nexus if 25 percent of property, payroll, or sales are in Washington, are eliminated.
The term “cumulative gross receipts” means all gross income of a business attributable to the state as determined by the applicable sourcing rules associated with type of business conducted. A marketplace facilitator must include not only its own gross receipts but also those of marketplace sellers that sell through the marketplace facilitator’s marketplace, even if such marketplace seller on its own does not meet the $100,000 threshold.
In addition, physical presence will also create nexus, which under the legislation, “need only be demonstrably more than a slightest presence.”
Marketplace Facilitator Reporting Requirement
The new legislation establishes, effective July 1, 2019, a reporting requirement for marketplace facilitators in order to assist marketplace sellers with their B&O tax reporting. Within 15 days following the end of each month, a marketplace facilitator must provide each of its marketplace sellers with access to gross sales information for all Washington sales (i.e., any sales sourced to the state, retail or otherwise) made as an agent of such marketplace seller during the immediately preceding month.
If a marketplace seller does not receive such information, it may determine its B&O tax liability based on a reasonable method of estimating Washington sales as may be required or approved by the Department.
Washington has been a leader in the economic nexus/marketplace facilitator rules and has served as a model for other states. The reduction of the state’s B&O threshold to $100,000 represents the first time a state with an economic nexus rule for a business activity tax aligned that threshold with Wayfair. In addition, Washington’s elimination of the sales transaction threshold occurred on the same day that North Dakota eliminated its sales transaction threshold.It will be interesting to see how other states react, particularly if those with factor presence nexus thresholds for income taxes begin reducing their thresholds down to $100,000.
Keeping up with state filing obligations and understanding where your business has nexus has never been more important. If your company has not had a nexus study done in the last six to nine months, chances are that your business is not complying with state income/sales taxes in all of the states in which it is required to do so.
Aprio’s SALT team has extensive experience with nexus issues and can assist your business with a nexus study to ensure that it is in compliance with all of its multi-state tax obligations and to reduce the risk of unexpected tax liabilities/penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the March 2019 SALT Newsletter.
See North Dakota S.B. 2191, signed into law on March 14, 2019, and effective for tax years beginning on or after January 1, 2019.
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.