Washington Explains That Enhanced Delivery Services Create Sales and Use Tax Nexus

Despite the Supreme Court’s ruling that physical presence is no longer a requirement for sales tax nexus, it can still create nexus for a taxpayer if the activities performed in the state on its behalf help to establish or maintain a market in the state.

By Tina M. Chunn, SALT senior manager

This newsletter contains an article discussing the United States Supreme Court decision in South Dakota v. Wayfair, in which the Court determined that physical presence was no longer required for a taxpayer to have sales and use tax nexus with a state.  However, that doesn’t mean that physical presence can’t create nexus; it most certainly can.  Determining what type or level of physical presence creates nexus may be confusing since it is open to varying state interpretations.

Over the years, many states have broadened the meaning of physical presence through state case law, as well as through legislative, regulatory and administrative enactments, to include activities of independent contractors or other representatives (related or unrelated) engaged by a company to perform activities in a state on the company’s behalf if those activities performed are significantly associated with the company’s ability to establish and maintain a market in the state for sales of its goods and/or services.  It is important to note that even temporary business activity by employees or independent contractors in a state, including the simple solicitation of orders, can create sales tax nexus and a corresponding collection, remittance, and filing obligation.  However, the basic delivery of goods by common carrier is not considered a nexus creating activity for the seller.

On May 10, 2018, Washington issued an excise tax advisory explaining that enhanced delivery services creates substantial nexus with Washington.[1]  Enhanced delivery services include additional service provided beyond the basic delivery of goods by a common carrier or mail.  These services are commonly known as “white glove” delivery and include such services as placing goods in the buyer’s room of choice, unpacking the goods, performing basic assembly, removing packaging from the buyer’s home, or touch-up services.  These services can be provided at no cost (included in the price of the good being delivered) or for an additional fee, and they are more frequently offered in connection with the sale of large or specialized care products.

Washington rules provide that physical presence is established in Washington by having employees or property in the state or by engaging directly or through an agent or other representative in activities to help establish or maintain a market in the state on the seller’s behalf (excluding basic delivery by common carrier).[2]

The state explained that these enhanced delivery services provided either directly or through an agent or representative exceed the basic delivery of products by a common or mail carrier, and thus do not fall within that exclusion.  These services support sales by encouraging customers to purchase from sellers that offer them in connection with the sale of large or specialized care products.  For example, a consumer that is purchasing a washer and dryer is more likely to purchase from a seller that offers enhanced delivery versus a seller that is going to leave them by the curb.  Therefore, providing these services helps the seller establish or maintain a market for its products in Washington. Accordingly, sellers that provide these services in Washington (either directly or through agents/independent representatives), have nexus with the state and are required to collect and remit sales and use tax.

Despite the Supreme Court’s decision permitting states to assert taxing jurisdiction based solely on economic nexus (i.e., revenue/transaction thresholds), physical presence nexus is still alive and kicking.  Taxpayers that do not meet the economic nexus rules may still have nexus through physical presence, and understanding what activities create nexus is crucial to establishing compliance with sales and use tax rules.

Aprio’s SALT team can assist with nexus determinations specific to your industry or business to provide you the confidence you will not incur unexpected sales tax liabilities and penalties.  We constantly monitor these and other important state and local tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn at tina.chunn@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the June 2018 SALT Newsletter.

[1] Excise Tax Advisory No. 3207.2018, Washington Department of Revenue, May 10, 2018.  It should be noted that this advisory only discusses the physical presence nexus standard.  WAC 458-20-19401 can provide further Information pertaining to the economic nexus standard

[2] Revised Code of Washington (RCW) 82.04.067(6); Washington Administrative Code (WAC) 458-20-193 (Rule 193).

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.

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