If you're an online retailer selling into Washington state, read this!
Washington's new economic nexus law can impact you!
Beginning October 1, 2018, Washington will enforce a new sales tax economic nexus law. According to RCW 82.08.020 and 82.08.050, a retail seller or marketplace facilitator who has $100,000 of gross retail sales in Washington or 200 retail transactions into the state during the current or prior calendar year is required to collect and remit sales tax on all taxable retail sales.
As a result, the new law significantly affects remote retailers, omnichannel retailers, electronic marketplace or eCommerce operators, and others making and facilitating online sales to Washington state residents. Economic nexus laws have created confusion and doubt for retailers, as many are unsure which laws pertain to them and what to do about it.
What is economic nexus for retail sales tax?
Sales tax nexus is the connection between a seller and a state that requires a seller to collect and remit tax on sales into the state. It’s long been based on physical presence: A state could tax sales by businesses with a physical presence in the state, but not those by businesses without one.
On June 21, 2018, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. that the physical presence rule was “unsound and incorrect.” It determined a seller’s “virtual and economic contacts” with a state could be substantial enough to establish nexus.
Thus, under economic nexus, a tax collection obligation is established by a remote seller’s economic activity in a state. South Dakota set the threshold at $100,000 in gross sales in the state, or 200 or more separate transactions into the state in the current or previous calendar year.
What does economic nexus mean for your remote retail sales into Washington?
Washington modeled its economic nexus thresholds on South Dakota’s. Effective October 1, 2018, a retailer without a physical presence in Washington who has either $100,000 in gross retail sales or 200 retail transactions in Washington during the current or prior calendar year is required to register its business with the state, and collect and submit sales tax on all taxable retail sales in Washington.
What should you do if you are selling this volume into Washington?
If you are a retailer who makes sales for delivery into Washington, you should:
- Complete a nexus study and identify whether you meet either of Washington’s new economic nexus thresholds
- If so, register your business with the State of Washington
- Collect and submit retail sales tax
If you do business in multiple states, you may want to consider participating in a broader nexus study. Approximately 25 states have adopted economic nexus provisions, including Illinois, Maryland, Mississippi, Vermont, and Wisconsin. Some started enforcing economic nexus on July 1, 2018; economic nexus is set to take effect in other states in the coming months on September 1, October 1, November 1, December 1, 2018, and January 1, 2019.
How can you minimize the complications of sales tax?
Sales tax compliance is complicated, and mistakes can be quite costly. Sales tax automation software such as Avalara can help simplify sales tax compliance for businesses in all states, improving efficiency and accuracy.