As it turns out, Colorado really was just the beginning. As of January 1, 2018, Washington will begin requiring remote sellers to either remit sales and use tax or comply with reporting and notice requirements similar to those in Direct Mktg. Ass’n v. Brohl (DMA IV), 814 F.3d 1129 (10th Cir. 2016). Who is subjected to this burden in the land of Nirvana and the Space Needle? Remote sellers with gross receipts in the current or preceding year of at least $10,000 are, which makes Washington state another to skirt around Quill, the SCOTUS case that requires actual, physical presence for a state to have nexus with a taxpayer, with a reporting requirement.
But the legislative change goes further. Not only are retailers who make income from sales within the state required to follow this, but referrers who receive income from referral services within the state are subject to it as well if the total gross income from that is at least $267,000.
With 33 states facing revenue shortfalls in fiscal years 2017 and 2018, there is no doubt a need to increase taxes. However, states can go about this in a wide variety of legal ways. They can expand the tax base by taxing services or currently nontaxable technology. They can even increase the tax rate if they want to. Instead, Washington is imposing these reporting requirements to reach companies with whom they fail to meet the nexus standard to impose collecting and remitting requirements. This overreaching of the states will likely be challenged. The question is: by whom?
The specifics of the new reporting and notice requirements are in EHB 2163 but can be summarized as follows:
(1) The seller must post a conspicuous notice on its website and on its customer invoices that includes a statement that sales or use taxes are due on certain purchases and that Washington requires the purchaser to file a use tax return
(2) The seller must 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 include details on the purchaser’s transactions.
(3) An annual report must also be filed with the department by February 28 of each year that includes purchasers’ information and an affidavit from a seller’s officer affirming that reasonable efforts were made to comply with notice requirements.
With this burden so high on taxpayers, the relief in regards to digital downloads goes mostly unnoticed. The requirement to remit or report on most sales of digital goods and digital codes is delayed until January 1, 2020.
Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is also an adjunct professor and assistant editor to the American Bar Association’s The Sales and Use Tax Deskbook. She can be reached at 954-800-4138 or JeanetteMoffa@FloridaSalesTax.com